The Reserve Bank of India's working group on digital lending is recommending a separate law for the sector to prevent illegal lending activities.

The working group, formed in January amid rising concerns for consumer protection as digital lending activities grow, also proposed to subject digital lending apps to a verification process by an agency to be set up in consultation with stakeholders.

The development of a baseline technology standard, which will form the basis for offering digital lending solutions is likewise suggested, along with making the algorithmic features used in digital lending transparent.

Further, the working group suggested the disbursement of loans directly into the bank account of borrowers, while disbursement and servicing of loans must only be through bank accounts of the digital lenders.

The objective of the working group's report is to enhance customer protection and to make the digital lending ecosystem safe and sound while encouraging innovation, according a Nov. 18 news release.

The central bank is seeking public comment on the recommendations until Dec. 31.