Shivangi Prakash-
On Tuesday, the Delhi High Court ordered the Reserve Bank of India to take a firm stance on online lending firms that are allegedly charging borrowers high interest rates.
A Division Bench of Chief Justice D N Patel and Justice Jyoti Singh told the authority, “Be quick in reacting in this matter.”
It further requested that the Central Government to meet with the RBI to determine what steps may be done to address the problem.
The Court was hearing a plea brought by Dharanidhar Karimojji, who was represented by Advocate Prashant Bhushan.
It was claimed that online lending sites are essentially an extortion scheme, charging naive people high interest rates. It was claimed that the interest rate can reach 500 percent per year, with arbitrary upfront processing fees of up to 30%.
As a result, the appeal aimed to regulate and govern online digital lenders who conduct business through mobile applications, among other means, by establishing a maximum rate of interest that they may charge.
It also asked for adequate guidance on how to deter borrowers from being harassed by collection agencies and how to set up a grievance redress system for borrowers in every state.
During the hearing, Bhushan claimed that Section 45 of the RBI Act gives the RBI broad authority to regulate these practices. He claimed that, despite the fact that the RBI was aware of the threat in June 2020, it had done little to avert it.
Responding to these arguments, RBI’s Advocate Ramesh Babu MR told the Bench that the RBI solely regulates banks and NBFCs.
He submitted, “Online lending platforms are different. They do not fall within the purview of RBI. The circulars referred to were issued to Banks & NBFCs, cautioning them not to use such platforms”
Although the RBI Act contains no “direct provision” for the regulation of interest rates for internet lending, the CJ instructed Babu to seek instructions on the Committee’s recommendations, if any.
The Court suggested that the RBI decide the rate of interest for online lending, which would be classified by the amount borrowed.
The Chief Justice remarked orally, “We expect that something should come out from you. Fix the rate of interest. Let them challenge; we will see what to do. But this much exorbitant rate and processing fees cannot be allowed.”
