RBI Regulatory Framework for Digital Lending

Recently, the Reserve Bank of India (RBI) has released its regulatory framework for digital lending, aimed at alleviating concerns about credit expansion through digital lending methods. The RBI  specifically mentioned that lending activities can only be carried out by institutions regulated by the RBI or those authorized by law.

RBI classified digital lenders into 3 groups;

  1. Institutions regulated by the RBI and authorized to engage in lending activities.
  2. Institutions are allowed to lend under other laws or regulations but are not regulated by the RBI.
  3. Lending institutions are beyond the scope of any law or regulation.
The RBI has issued these guidelines for Tier 1 Organizations or organizations regulated by it. For other entities,  of the second and third categories, he asked the respective regulator or watchdog or the central government to issue guidance based on the task force's recommendations.

  Important suggestions include; 

  • For  entities regulated by RBI (ER), Lending Service Provider (LSP) and their ER Digital Lending App, loan disbursement and repayment will be made mandatory. between the borrower's bank account and the ER without wire transfers or any third parties.
  • Fees for the LSP will be paid directly by the ER and the LSP will not bill the borrower.
  • REs are required to disclose all-inclusive costs of digital loans to borrowers as an annual percentage rate (APR).
  • Credit limits cannot be automatically increased  without the borrower's express consent.
  • To maintain the confidentiality of data, RBI requires that data collected by the DLA be demand-based and executed prior to the customer's consent.

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