Why has RBI warned people against digital lending apps available on mobile?

RBI has issued a stern warning to consumers against digital money lending websites that have proliferated in the last couple of years. Most of these digital lending apps can be downloaded on the mobile and they promise loans in seconds. However, these loans come at exorbitant rates of interest and lenders use strong arm tactics to recover such dues.

Of late many of these peer-to-peer lending website or P2P lending as they are known to have lured customers with quick funding at rates as high as 3-4% per month. That is an exorbitant rate of almost 50% per year, which can lead to personal bankruptcies. RBI has cautioned consumers to avoid such usurious lenders and read the fine print properly.

RBI also pointed that there is practice among many people to share copies of KYC documents and identity documents with unidentified persons and unauthorised persons. In such cases, RBI has specifically asked people to report such apps to the RBI or to the nearest police station. P2P lending may look simple but comes with a lot of strings attached.

RBI has already made it mandatory that P2P lending websites working on behalf of Banks and NBFCs must mandatorily disclose the name of the bank or NBFC upfront to the customers. This warning by RBI comes after reports of individuals and small businesses falling easy prey to such unauthorised digital lending platforms promises easy loans.

RBI pointed out that their investigations had revealed that such lending apps charged excessive rates of interest and loaded hidden charges to take advantage of desperate borrowers.