“Online lending platforms are outside our purview” – RBI tells Delhi HC
The Delhi High Court (HC) ordered the Reserve Bank of India (RBI) to take a clear position in favor of regulating online lending platforms which are charge exorbitant interest rates borrowers.
A LiveLaw report said a division bench of Chief Justice DN Patel and Justice Jyoti Singh told RBI: “Act quickly in this matter.”
The Delhi HC was hear a request filed by Dharanidhar Karimojji although the lead lawyer Prashant Bhushan. Advocacy aims to regulate and monitor online digital lenders doing business through mobile apps by setting the maximum interest rate they can charge.
It also seeks appropriate guidance to end harassment of borrowers through collection agents and to establish a grievance mechanism for borrowers in each state.
The petitioner pointed out that online lending platforms are practically an extortion racket, charging outrageous interest rates to naïve people. It has been alleged that the interest rate goes up to 500% per annum with arbitrary upfront processing fees of up to 30%.
The bench also asked the central government to sit down with RBI and see what steps can be taken to curb the threat.
During the hearing, Senior Counsel Bhushan indicated that the RBI has sufficient powers to regulate these activities under section 45 of the RBI Act.
He pointed out that although RBI recognized this threat in June 2020, it has done little to prevent the same.
He referred to a warning issued by RBI December 23, 2020 in this regard. He also cited a circular dated June 24, 2020 addressed to all scheduled commercial banks and non-bank finance companies (NBFCs) regarding the loans they have taken out through digital lending platforms.
Recognizing the boom in digital lending through online platforms and mobile applications, the RBI has also implemented a work group evaluate and recommend digital lending measures. This group was also to identify the risks posed by unregulated digital lending to financial stability, regulated entities and consumers.
“RBI is fully aware of the problem. But all they did was in January of this year they formed a committee of 4 internal members and 2 external people to look into these issues and suggest ways to regulate. They gave the Committee 3 months to table a report. These 3 months expired in April. But in May 2021, when RBI filed its counter-affidavit, they said nothing about the committee’s report. Whether he came or not, we don’t know. Meanwhile, this threat continues unchecked. Why not take action under the powers they already have under section 45? Mr. Bhushan asked.
Attorney Ramesh Babu MR representing RBI responded that the central bank only regulates banks and NBFCs.
“Online lending platforms are different. They do not fall under the jurisdiction of the RBI. The circulars referred to have been issued to banks and NBFCs, warning them not to use such platforms,” a- he submitted to the HC.
When asked who was the competent authority, Mr. Babu replied: “The government! The Indian Union is expected to come up with regulations.
The HC observed that RBI cannot shirk its responsibility and must take appropriate action.
“RBI can’t just say we don’t have powers…?” so do what you want? ”Chief Justice Patel asked the RBI attorney.
While acknowledging that there is no “direct provision” under RBI for regulating the interest rate for online loans, the Chief Justice asked Babu to seek instructions on any suggestions, if any, made by the committee, according to the LiveLaw report.
While the HC has now given RBI more time to respond in conjunction with the central government, but has also chided the RBI: “After receiving this petition, have you given any thought to this difficulty? You should think about this kind of eventuality. So many frivolous PILs are being filed these days which are being dismissed with costs. But this PIL is one of the best! “
The HC suggested to the banking regulator that it could finalize the interest rate for online loans, ranked according to the amount borrowed.
“We expect something to come out of you. Fix the interest rate. Let them dispute, we’ll see what to do. But this much higher rate and processing fee cannot be allowed,” said the Chief Justice Patel in concluding the hearing.