RBI Regulatory Framework for Digital Lending

Recently, the Reserve Bank of India (RBI) released regulatory framework for digital lending, in a bid to mitigate the concerns related to credit delivery through digital lending methods. RBI has specifically mentioned that, lending business can only be done by entities that are regulated by RBI or those allowed under the law.

RBI has categorised the digital lenders into 3 groups;

  1. Entities regulated by RBI and permitted to carry out lending business
  2. Entities permitted to carry out lending as per other statutory or regulatory provisions but not regulated by the RBI.
  3. Entities lending outside the domain of any statutory or regulatory provision.

RBI has released these guidelines for first category entities or entities regulated by it. For other entities, that are part of second and third categories, it has asked respective regulator or controlling authority or central government release guidelines on the basis of recommendations of working group.

Important guidelines include;

  • For RBI-regulated entities (REs), their lending service providers (LSPs), and digital lending apps of REs, loan disbursal and repayments will be mandatorily executed between the borrower’s bank account and the RE, without any pass-through or any third party.
  • Fees for LSPs will be paid directly by REs and will not be charged by LSP to the borrower.
  • REs are required to disclose all-inclusive cost of digital loans in annual percentage rate (APR) form, to the borrower.
  • Credit limits cannot be increased automatically, without the borrower’s explicit consent.
  • To maintain the data privacy, RBI has mandated that, data collected by DLAs should be need-based and it should be taken prior to customer’s consent.

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