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What are the Guidelines on Digital Lending?

On account of the rise in digital lending platforms, ‘Guidelines on Digital Lending’ were introduced for regulation of this segment.

What is digital lending?

Digital Lending refers to a remote and automated lending process, largely by use of seamless digital technologies for customer acquisition, credit assessment, loan approval, disbursement, recovery, and associated customer service.

Digital Lending Apps / platforms (DLAs) include apps of the Regulated Entities (REs) as well as the apps of Lending Service Providers (LSPs) engaged by REs as agents for extending any credit facilitation services.

What is the basis of the Guidelines on Digital Lending?

The guidelines on digital lending are based on the recommendations of the Working Group on ‘digital lending including lending through online platforms and mobile apps’ (Chairman: Jayant Kumar Dash).

Which REs are covered by the Guidelines?

The guidelines are applicable to digital lending extended by following REs –

  1. All Commercial Banks
  2. Primary (Urban) Co-operative Banks
  3. State Co-operative Banks
  4. District Central Co-operative Banks
  5. Non-Banking Financial Companies (including Housing Finance Companies)

Which loans are covered under the Guidelines?

The guidelines are applicable to the ‘existing customers availing fresh loans’ and to ‘new customers getting onboarded’, w.e.f. September 02, 2022.

Further, REs are given time till November 30, 2022, to ensure that ‘existing digital loans’ (sanctioned as on September 02, 2022) are also in compliance with these guidelines.

What are the responsibilities of REs under the Guidelines?

  • REs shall ensure that the LSPs engaged by them and the DLAs (either of RE or of LSP engaged by RE) comply with these guidelines.
  • REs shall ensure that all loan servicing, repayment, etc., are executed by the borrower directly in the RE’s bank account without any pass-through account / pool account of any third party. 
  • The disbursements shall always be made into the bank account of the borrower or the end-beneficiary. REs shall ensure that in no case, disbursal is made to a third-party account, including the accounts of LSPs and their DLAs.
  • REs shall ensure that any fees, charges, etc., payable to LSPs are paid directly by them (REs) and are not charged by LSP to the borrower directly.
  • The penal interest / charges levied, if any, on the borrowers shall be based on the outstanding amount of the loan.
  • The responsibility of grievance redressal continues to remain with the RE. If any complaint lodged by the borrower against RE or the LSP engaged by RE is not resolved by the RE within 30 days, the customer can lodge a complaint under Reserve Bank-Integrated Ombudsman Scheme (RB-IOS). For entities currently not covered under RB-IOS, complaint may be lodged as per the grievance redressal mechanism prescribed by RBI.
  • REs shall ensure that there is no automatic increase in credit limit unless explicit consent of borrower is taken on record for each such increase.
  • In case a borrower decides not to continue with the digital loan, a cooling off / look-up period shall be given to borrowers for exiting the loan by paying the principal and proportionate Annual Percentage Rate (APR) without any penalty. The cooling off period shall be determined by the Board of the RE, but it shall not be less than one day. (Updated on April 15, 2024)
  • REs shall ensure that LSPs / DLAs engaged by them do not store personal information of borrowers except some basic minimal data that may be required to carry out their operations. Responsibility regarding data privacy and security of the customer’s personal information will be that of the RE.
  • REs shall ensure that any lending done through their DLAs and / or DLAs of LSPs is reported to Credit Information Companies (CICs) irrespective of its nature / tenor.
  • Extension of structured digital lending products by REs and / or LSPs engaged by REs over a merchant platform involving short term, unsecured / secured credits or deferred payments, need to be reported to CICs by the REs.


References

Reserve Bank of India. (2022, September 02). 'Guidelines on Digital Lending'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12382&Mode=0

Reserve Bank of India. (2022, August 10). 'Recommendations of the Working group on Digital Lending - Implementation'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=54187

Reserve Bank of India. (2024, April 15). 'Key Facts Statement (KFS) for Loans & Advances'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12663&Mode=0


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