Delhi High Court directs RBI and Centre to conform to e-lending framework

Delhi High Court directs RBI and Centre to conform to e-lending framework

A PIL was filed seeking a direction to regulate and control the working of online digital lenders

The Delhi High Court has directed the Reserve Bank of India and the Central government to ensure the implementation of its framework for the regulation of digital lending platforms.

A division bench of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad observed that the RBI had issued a framework on August 10, 2022, on the regulation of digital lending platforms. This included online platforms and mobile applications, based on the recommendations of its working committee.

The court stated, "However, the Reserve Bank of India and the Government of India shall ensure strict compliance of the regulatory framework vide the 10.08.2022 Press Release in respect of the recommendations. The Government of India will take immediate steps in accordance with the law."

The bench was hearing a public interest litigation (PIL) seeking a direction to the Centre to regulate and control the working of online digital lenders engaged in lending money through mobile apps or other platforms. It sought to restrain them from charging exorbitant interest on the loan from borrowers and harassing them.

The PIL further requested saving the borrowers from recovery agents and fixing the maximum interest of rate chargeable by online digital lenders. The plea sought the setting up of a grievance redressal mechanism for borrowers in every state/Union of India.

The litigant apprised the court that over 2,000 apps on Google Play Store provided loans to borrowers of small amounts. Also, certain online loan companies were functioning as non-banking finance companies (NBFCs) regulated by the RBI. However, the RBI, the state governments, and the Centre had not fixed any cap on the 'maximum interest rate'.

In response, the RBI stated that online lending platforms were deployed by banks/NBFCs for the grant of loans that could either be owned by them or availed by them under the outsourcing arrangement.

The RBI said, "Lending activities over digital platforms or apps can also be undertaken by other entities regulated by the state governments under statutory provisions, such as the money lending acts of the concerned states."

It further mentioned that lending activities by these entities were outside the 'direct regulatory purview' of the relevant laws under which it derived powers.

The central bank also submitted before the court that it constituted a working committee to look into digital lending (including through online platforms and mobile apps), the granular aspects of financial technology and its implications, and to review and reorient the regulatory framework.