Agony behind Easy Credit

The recent oral observation by a Supreme Court division bench comprising Justice Surya Kant and Justice Joymalya Bagchi—stating that the Reserve Bank of India (RBI), rather than the courts, is the appropriate forum for addressing grievances related to unregulated lending—brings to light a telling paradox.

The story of India’s financial revolution has been one of innovation and inclusion—of smartphones enabling rural banking, Aadhaar linking millions to subsidy schemes, and digital wallets becoming daily essentials. Yet, lurking beneath this impressive surface is a growing and insidious crisis—an explosion of unregulated personal loans, algorithm-driven disbursals, and coercive recovery mechanisms that are quietly trapping millions in cycles of debt.

Over the past five years, India has witnessed an unprecedented rise in app-based lending platforms—many of them operating without proper licenses, often floating under the regulatory radar by using shell entities or foreign servers. While RBI has issued guidelines on digital lending and appointed working groups, enforcement remains spotty. Lenders, especially non-banking financial companies (NBFCs), often deploy aggressive field recovery agents who resort to threats, coercion, and public shaming—tactics reminiscent of loan sharks.

The distress is real, widespread, and disturbingly invisible to policymakers. The architecture of our financial system today allows a salaried employee in a tier-2 city to receive five separate personal loans from as many fintech apps in less than an hour. But if that same individual finds himself unable to pay after a health crisis or a job loss, his recourse to restructuring, counselling, or legal remedy is murky at best.

In rural and semi-urban India, the situation is worse. With weak institutional presence and limited financial literacy, many borrowers are lured into taking multiple concurrent loans with attractive EMI schemes and “no documentation” offers. The problem is not just the loan—it is the absence of full disclosure, the lack of cooling-off periods, the opacity of interests compounding mechanisms, and the absence of centralised borrower information. These factors combine to push families into unmanageable liabilities.

The human cost is profound. What makes matters worse is the behaviour of mainstream institutions. S Singhal, retired deputy general manager of a leading nationalised bank, informs, “Many scheduled banks, despite enjoying public trust, participate in this high-speed, opaque lending ecosystem through partnerships with NBFCs and fintech aggregators. They disburse loans without a personal interaction or risk assessment beyond a credit score. They do not ask if the borrower has other liabilities, or whether a spouse is aware of the loan being taken.”

Various credit information companies and bureaus, too, are part of this web. Borrowers frequently complain that once they fall into arrears with a single lender, their credit reports get locked in a negative loop—even if they settle the dues later.

What, then, is the role of the regulator? Dr S Balwada, advocate-on-record, Supreme Court of India, advises, “The RBI’s mandate includes safeguarding the interests of depositors and ensuring fair practices. But when its grievance redress portals redirect complainants to the very banks or NBFCs they are battling, the system becomes a circle of abdication. The average borrower neither has the legal sophistication to file consumer complaints nor the time to approach a High Court. Most quietly give up—and some, tragically, give in.”

Justice Surya Kant’s observation—that disputes involving lending practices are better handled by financial regulators—is institutionally sound. Courts, after all, are not designed to perform the day-to-day oversight functions of economic bodies like the Reserve Bank of India, adds Balwada

In lending matters, even a well-reasoned acknowledgment of systemic lapses can act as a catalyst for policy reform. Often, the judiciary’s voice lends legitimacy and urgency to public grievances that otherwise remain unheard in regulatory corridors.

When borrowers feel voiceless, and institutions remain unresponsive, the courts serve as the last democratic forum. Their role is not to rewrite policy, but to ensure that justice is not a casualty of red tape or bureaucratic opacity.

Meanwhile, the government’s silence is even more deafening. No major legislative attempt has been made to create a unified Financial Consumer Protection Code. The Debt Recovery Tribunals are overburdened and under-resourced. The financial literacy campaigns are more symbolic than structural. And institutions like the National Human Rights Commission have yet to treat aggressive debt collection practices as potential human rights violations. Unless institutions—regulators, ministries—begin to treat borrower protection as a central pillar of economic justice, the silent debt trap will continue to devour the very citizens financial inclusion was meant to empower.

More importantly, public sector banks must lead by example. If nationalised banks, backed by the state, cannot uphold ethical lending practices, what incentive do private lenders have to do better? It is a reminder that financial dignity is as important as financial access.

The writer is an accredited journalist. Views expressed are personal