RBI Deputy Governor Warns Against Aggressive Loan Recovery Tactics by Fintech Companies

RBI's Deputy Governor Swaminathan J expressed concerns over aggressive loan recovery practices by fintech companies. He highlighted privacy invasions by recovery agents and emphasized the need for regulated lenders to maintain accountability. RBI aims to ensure the stability and integrity of the financial system while fostering innovation.

The Reserve Bank of India's Deputy Governor, Swaminathan J, has emphasized the growing reliance on digital infrastructure for loan sanctioning, while highlighting the persistent need for traditional recovery methods. Speaking at a media event in Mumbai, he noted that many fintech companies are granting loans to customers with poor credit profiles and resorting to aggressive recovery tactics upon default.

"While the process of loan sanctioning has become increasingly digital, effective collection and recovery still demand a 'feet on the street' approach along with empathy," said Swaminathan. He pointed out that several fintech platforms operate by offering small-value loans to customers with poor credit, leading to the adoption of recovery strategies that often breach ethical boundaries.

Swaminathan also shed light on disconcerting practices involving recovery agents invading customers' privacy by accessing personal data and contacts to intimidate them. He warned that such tactics not only violate individual privacy rights but also tarnish the reputation of regulated lenders involved with these fintech platforms.

Additionally, Swaminathan highlighted RBI regulations regarding outsourcing, stressing that regulated financial entities are still accountable for the actions of their third-party agents. He noted that digitalization allows banks and NBFCs to utilize data for better understanding customer needs, fostering bespoke products, and enhancing risk management.

The deputy governor reaffirmed RBI's role in establishing a balanced regulatory framework that promotes innovation while prudently managing risks. He emphasized the primary mission of RBI to ensure the financial system's stability and integrity, without obstructing business operations.

(With inputs from agencies.)