IIt’s no secret that technology is changing the world. While science quickly adopted technology, the financial services industry has followed suit over the past decade.
This suggests that the use of technology in banking and non-banking financial institutions is increasing. The use of technology in the banking industry has been quite successful. The widespread use of technology has enabled many digital loan and payment services to reach a larger user base. It also simplified financial procedures, making it easier to obtain bank credit.
It should be mentioned that whenever a new technology is invented, its regulation parameters have to be changed. Thus, with all the technical advances, its regulations must be updated to control disbelievers and irregularities. This prompted the Reserve Bank of India to demand that all digital platforms that conduct digital transactions adhere to the Fair Practices Code.
The advisory was reportedly issued following a series of heinous events revealing unethical behavior at several financial institutions. These vile and immoral tactics included imposing high interest rates on loans and not revealing how interest was calculated. In addition, improper and illegal use of customer data was used to collect loans.
The RBI then created a code of fair practice that applies to all digital lending institutions. The code will also encompass organizations that partner with organizations subject to RBI’s digital regulation. According to the letter, the digital lending platform and the agent must be identified. For loan companies to combat disparities, this will help. To protect the interests of consumers, digital lending platforms operating as agents must adequately disclose to their customers the name of the bank or NBFC on whose behalf they are operating.
Protecting consumer interests is clearly a major concern for the central bank and the country’s regulatory banking apparatus.
Due to the success of the business model and its constraining structure, the number of services provided by various online banking servers would decrease. Small traders, retailers and others who were able to easily obtain loans will no longer be able to do so. Long transfer and transaction procedures can occur due to online bank checks. But it’s worth mentioning that the rules were put in place to streamline the entire operation and eliminate any glaring inconsistencies.
Second, all the inconsistencies in the system caused by non-regulation could have resulted in a big economic bubble. This indicates that an unregulated industry, notably online banking, may have given rise to various Ponzi scams and generated an illusion of boom due to the credit facility. Quick sources of credit may have led to unsolicited market exuberance, which may result in adverse economic fluctuations.
This led to consumer betrayal and the start of a grand ponzy scheme that may have effectively defrauded the market of their money and savings. It is important to stress that economic savings are important because they usually lead to economic investments. Obsolete management can cost the economy dearly. Since customer happiness is the pinnacle of pleasant banking procedures and operations, it has also been found that customers struggle to contact their banks online. There was not a sufficiently clear, methodical and structured framework.
In reaction to this mismanagement, RBI developed the “Fair Practices Code”. This was done to make it clear that banks or NBFCs cannot escape their commitments by outsourcing an activity.
Overall, the rules of apex bank will help create a friendly, trusting and transparent atmosphere. It would also help weed out shady digital lenders who might act as unregistered NBFC representatives.
Also, these rules will be the sole guardians of consumer data, essential for their proper functioning and analysis. The RBI Code of Fair Practices would help dispel any misunderstanding between lenders and borrowers. These channels will not only eliminate communication problems, but will also serve as a point of complaint.
In the banking sector, a clear, consistent and systematic method is required for borrowing and lending. Following the RBI’s suggestions and guidelines, some financial services companies have put in place their own internal rules. The fact that many financial services have made recommendations shows that not only the RBI, but the entire industry needs a clean sector. #KhabarLive #hydnews
(About the Author: This article written by Nitin Purswani, CEO and co-founder of Medius AI)