RBI cautions borrowers

The Reserve Bank of India (RBI) has warned borrowers to be aware of digital lending entities who promise personal loans within minutes and charge exorbitant rates of interest. They then tend to use aggressive methods to recover dues in case there is a default.

According to the RBI, borrowers must only borrow from firms that are either registered with the RBI or regulated by state governments. It has also mandated digital lending platforms to state the names and addresses of banks or non-banking finance corporations (NBFC), upfront.

The Central Bank’s warning has come after there have been several complaints about retail borrowers falling prey to a growing number of unauthorised digital lending platforms and mobile apps that promise quick loans in a hassle-free manner. The suicide cases of borrowers unable to pay loans associated with digital lending apps are also rising.

Payday loans are small-ticket loans (typically Rs 1,000 to Rs 3 lakh) given to people in the age group 21-35. While authorised ones do your know-your-customer verification, the unauthorised ones don’t even ask for any documents.

While the self-employed borrow small amounts to meet business needs many borrow for seven days to three months. Interest rates vary from 25 to 40 per cent a year while the processing fee is 15-20 per cent. In addition, an 18 per cent goods and service tax (GST) is levied on the processing fees. Also, after the due date, lenders charge huge penalties (overdue fees).

And now the flipside. They get access to your mobile contact list once you download their apps and start using them. If you default, many use strong-arm tactics such as public naming and shaming to make you repay.