DIGITAL LOANS, TRADITIONAL RECOVERY: RBI DEPUTY GOVERNOR HIGHLIGHTS 'FEET ON THE STREET' APPROACH

Swaminathan J., RBI Deputy Governor, highlighted the need for traditional recovery methods despite the shift to digital loan sanctioning.

Swaminathan J., the Deputy Governor of the Reserve Bank of India (RBI), recently underscored the transformative impact of digital infrastructure on the loan sanctioning system, which has largely shifted to an online mode. However, he stressed that while digitalization has streamlined the processes of loan sanctioning and disbursement, loan recovery still demands a traditional, in-person approach, often referred to as "feet on the street." Speaking at a media event in Mumbai, Swaminathan highlighted the complexities and challenges associated with the digital loan ecosystem, particularly the practices of fintech companies that target customers with poor credit profiles.

Swaminathan pointed out that many fintech players, capitalizing on the digital infrastructure, have simplified the process of granting loans, even to individuals with subpar credit histories. However, this ease of access comes with significant risks. He noted that these fintech companies often employ aggressive recovery tactics when borrowers default on their loans. According to Swaminathan, the business model of many fintech platforms is predicated on extending small-value loans to customers who are likely to struggle with repayments. This approach, while innovative, has led to the adoption of recovery strategies that, in many instances, cross ethical boundaries.