Why is it in the News?

Fresh measures to curb unauthorised online lending apps’ operations could be on the anvil, following deliberations on the issue at the Financial Stability and Development Council (FSDC) chaired by Finance Minister Nirmala Sitharaman recently.

About the Financial Stability and Development Council (FSDC):

• The Financial Stability and Development Council (FSDC) is a high-level body established by the Government of India in 2010 to address macroeconomic and financial stability issues.
• Although not a statutory body, it operates under the Financial Stability Division of the Department of Economic Affairs within the Ministry of Finance.

Background:

• In response to the global financial crisis of 2008, recommendations were made by the Raghuram Rajan Committee for the creation of a centralised regulatory body to oversee India's financial system.
• The establishment of FSDC reflects India's proactive approach to enhance preparedness for future financial challenges.

Composition:

• Chaired by the Union Finance Minister, the council comprises key stakeholders including the Governor of the Reserve Bank of India (RBI), finance and economic affairs officials, regulatory body chairpersons, and other relevant authorities.
• The Secretary of the Department of Economic Affairs serves as the council's secretary.

Responsibilities:

• FSDC is entrusted with the task of promoting financial stability, coordinating policy responses to systemic risks, and fostering the development of India's financial sector.

Concerns and Future Directions:

• Concerns have been raised about potential encroachment on the autonomy of sectoral regulators due to FSDC's leadership by the Union Finance Minister.
• To address this, it's crucial to safeguard the independence of regulatory bodies and establish clear guidelines to ensure effective coordination without undermining regulatory authority.

What is Digital Lending?

• Digital lending refers to the process of accessing credit online, facilitated through web platforms or mobile applications.
• This approach leverages technology across various stages of the lending process, including customer acquisition, credit assessment, approval, fund disbursement, recovery, and customer service.

Key Features:

• Utilises technology for end-to-end lending operations, enhancing efficiency and accessibility.
• Offers flexibility in credit options and facilitates swift transactions, appealing to modern borrowers.
• Prominent examples include Buy Now, Pay Later (BNPL) schemes, which provide short-term financing for purchases, allowing consumers to defer immediate payments.

Drivers of Growth:

• Increased adoption is driven by widespread smartphone usage and the convenience of online transactions.
• Flexibility in credit offerings and simplified application processes contribute to the popularity of digital lending platforms.
• BNPL services, in particular, cater to consumers seeking deferred payment options for purchases and services.