Bajaj Finance rap shows need to balance financial inclusion, consumer protection

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₹92,267 crore in FY23. The segment is growing rapidly, and not just in big cities. Clearly, in a country with a young population, rapid digitisation, and a growing number of fintech firms, digital lending is poised to grow rapidly.

Traditional banks have recognised this and are now offering pre-approved loans based on credit scores and other data. The personal-loan segment has benefited from increased automation, and better monitoring of saving, spending and buying behaviour. Over the next few years, more customised digital lending products are expected to be unveiled as lenders and borrowers get more comfortable with this form of lending.

More importantly, digital lenders serve a genuine need for a segment of borrowers, who have either been denied such credit or are unable to provide the collateral that other lenders demand. This has not come at the cost of big banks. Indeed, the lowering of entry barriers in banking, including differentiated licences for small finance banks, has helped expand banking services and credit across the country.

The RBI will have to be mindful of how it intervenes in the segment and avoid heavy-handed regulation. Digital payments is one thing the RBI and the government have got right so far. It is therefore important for both to boost financial literacy and set up an effective grievance-redressal mechanism.