The Reserve Bank of India banned using direct selling agents for loans. RBI restricted the role of agents to carry out their activities on Bank Loans. Concerns on data theft and operational risk for banks RBI took this step.
The Ban
RBI stated that the DSAs will neither be allowed to source retail loans nor conduct the verification of the borrower’s documents. Before this rule, the major portion of retail assets including credit cards, consumer credits, and personal loans have been sourced by DSA’s, making a significant increase in the banks’ assets. To prevent leaking of too much information to unauthorized authorities the Reserve Bank of India took this step. According to RBI, the ‘Know Your Customer’ procedure must be handled by the bank’s official. The agents should have a limited role in performing the verification of the documents.
The FATF’s role
The guidelines of the new prevention will be according to the norms of the Financial Action Task Force. Established at the Paris summit of G7 in 1928, this intergovernmental policy-making body constitutes 39 members. It keeps a check on money laundering, terrorist financing, and other money-related frauds. RBI supported its decision by stating the fact that it is against the norms of the Credit Information Companies Regulation Act to provide the customer database to the credit information companies.
As of now, the agents hired by banks will carry a biometric reader to the customer for identity verification instead of verifying the documents physically. Meanwhile, the banks fear that the decision will curtail the growth of retail loans. They are planning to appeal to the government for the same.
To sum up, RBI has taken this decision to eliminate the unethical practice of uncovering the details of the customers. This will also help to curb financial fraud.