Credit risk

Widespread use of new credit risk assessment methodologies can create systemic problems, warns RBI Guv

Big technology companies (BigTech), which have entered into the provision of financial services, could potentially be a source of disruption to the financial system, Reserve Bank of India Governor Shaktikanta Das has warned.

He observed that these companies, whether from e-commerce, social media, search engine platforms, carpools and similar businesses, have started to massively offer financial services, alone or on behalf of from others.

“These companies have a huge amount of customer data, which has helped them offer bespoke financial services to entities and individuals with no credit history or collateral.

“Even banks and other lenders sometimes use platforms provided by fintech companies in their internal credit risk assessment processes,” Das said at a BFSI summit hosted by a trade publication.

Such widespread use of new credit risk assessment methodologies can create systemic problems such as excessive leverage or inadequate credit assessment, the Governor warned.

A nice balance

Authorities and regulators must strike the right balance between enabling innovation and preventing systemic risks, he added.

Das observed that big tech also poses challenges related to competition, data protection, data sharing and operational resilience of critical services in situations where banks and NBFCs use the services of big tech companies. .

“These concerns may also materialize in sectors other than financial services. The provision of financial services through the digital channel, including loans through online platforms and mobile applications, has raised issues related to unfair practices, data privacy, documentation, transparency, conduct , to violation of license terms,” Das said.

The Reserve Bank will soon release guidelines and appropriate measures to make the digital lending ecosystem safe and robust, while improving customer protection and encouraging innovation.

“The increasing use of digital technology and services has led to more incidents of digital fraud and customer dissatisfaction. Recommendations from the RBI Digital Lending Task Force in this area are being reviewed for the release of guidelines,” Das said.

In the context of customer service, the Governor noted that another area that is getting the attention of the RBI is the harsh collection methods used by some lenders, without having adequate checks and checks on their debt collectors. .

“We have received complaints from customers being contacted by recovery agents at odd hours, even after midnight. There are also complaints of recovery agents using foul language. This type of action by debt collectors is unacceptable and poses a reputational risk for the financial entities themselves.

“We have taken note of such cases and will not hesitate to take strict action in cases where regulated entities are involved. Such complaints against unregulated entities will have to be dealt with by law enforcement agencies. appropriate law,” Das said.

Published on

June 17, 2022