OVERVIEW OF RBI’S DIGITAL LENDING GUIDELINES

By Astik Dubey
On the first week of September 2022, the Reserve Bank of India as has issued strict guidelines
for digital lending. In this era of fintech modernization, where people are using technology for
their finances like issuing and borrowing loans through various digital lending platforms
resulting in fraud and scams. Common people who are not aware of this fraud become their
victims, due to their greediness. So, with an objective to regulate digital lending by these
fintech platforms and to ensure orderly growth and protect the customer, the central bank on
Sep 2, 2022, issued strict guidelines to regulate this digital lending.
The major reason is that these digital lending platforms are charging high-interest rates if a
person failed to repay the loan and uses aggressive and unlawful recovery practices to ensure
returns from the borrowers.

SCOPE OF THE RBI GUIDELINES

• All Commercial Banks,
• Primary (Urban) Co-operative Banks, State Co-operative Banks, District Central Co-
operative Banks; and
• Non-Banking Financial Companies (including Housing Finance Companies)
Note: These all are Regulated Entities (REs) as under sub-clause 2.6 of Clause 2.

IMPORTANT TERMINOLOGY
Digital Lending: “Sub Clause 2.3 of Clause 2 of the circular states that a remote and automated
lending process, is largely by the use of seamless digital technologies for customer acquisition,
the credit assessment, loan approval, disbursement, recovery, and associated customer
service.”1 (In a simple sense when any person takes a loan through any mobile application or
web-based platform known as digital lending)
Digital Lending Apps/Platforms (DLAs): “In Sub clause 2.4 of Clause 2 of the circular DLA
define Mobile and web-based applications with a user interface that facilitate digital lending
services. DLAs will include apps of the Regulated Entities (REs) as well as those operated by

https://rbidocs.rbi.org.in/rdocs/notification/PDFs/GUIDELINESDIGITALLENDINGD5C35A71D8124A0E92AEB940
A7D25BB3.PDF
Lending Service Providers (LSPs) engaged by REs for extending any credit facilitation services
in conformity with extant outsourcing guidelines issued by the Reserve Bank.”2
Lending Service Provider (LSP): “An agent of a Regulated Entity who carries out one or more
of the lender’s functions or part thereof in customer acquisition, underwriting support, pricing
support, servicing, monitoring, recovery of specific loan or loan portfolio on behalf of REs in
conformity with extant outsourcing guidelines issued by the Reserve Bank.”3

KEY TAKEAWAYS FROM THE CIRCULAR.

• As per the new Rules, Regulated entities must ensure that the repayment and servicing
from the borrower are executed directly in their own account without any 3rd party
interference or pool account engagement.
• The disbursement of the amount also needs to be made directly into the borrower’s
bank account.
• Any Fees or charges payable to lending service providers should be paid directly by the
regulated entity and not by the borrower.
• It should be ensured by the Res that all loan services providers engaged by them should
have a nodal grievance redressal officer to deal with digital lending – relate complaints.
• RBI also encouraged transparency in the lending by the borrowers
• “Key Fact Statement” KFS ( a document which contains all the costs pertaining to the
loan, including fee origination charges, interest rates, and agency fees) must be
provided to the borrower before the loan contract is executed.
• Data that is provided by the borrower can not be used without the consent of the
borrower.
• The government may consider framing legislation for the banning of unregulated
lending activities.
• RBI also recommend that to ensure only authorized and trusted lending apps are used
by consumers, an independent body styled as Digital India Trust Agency should be set
up.
In this era of digitalization, these types of guidelines are the need of the hour, in the absence of
a data privacy legal framework. With such guidelines, consumers' interests are protected.

2
Ibid
3
ibid