The norms on digital lending issued by the Reserve Bank of India (RBI) on digital lending are aimed at striking a balance between innovation and protection of customer interest, M Rajeshwar Rao, Deputy Governor of the RBI said.

“The challenge for the regulator for a fast developing economy like ours is to keep pace with market innovations and try to strike a balance between ensuring stability without hampering innovation,” Rao said at an event organised by industry body Assocham.

While digital lending has gathered pace in recent times and changed the nature of banking, consumer protection is necessary from risks arising from practices such as breach of data privacy, disruptive business models, aggressive recovery methods and exorbitant interest rates.

Also Read: Existing loans must comply with new digital lending norms by November

“Responsible financial innovation requires balancing innovative products with necessary safeguards for ensuring financial system stability and customer protection,” he said.

The RBI in August issued norms on digital lending based on recommendations of a working group. The key guidelines include disbursal of loans to the bank accounts of borrower from the lender without any third party and full disclosure of any fees and charges payable to loan service provider. The RBI last week directed lenders to comply with the digital lending norms by November 30.

Lenders are responsible for complying with the digital lending and they will have to ensure that the loan service facilitator and the digital lending entities with whom they have outsourcing tie ups function within regulatory ecosystem, the deputy governor added.

While deepening credit is the bedrock of financial inclusion, access to formal credit as a force multiplier, Rao said. However, banks and regulators need to work on improving the trust of customers in order to increase use of the bank accounts, he added.