RBI unveils new guidelines on digital lending

September 7, 2022

The Reserve Bank of India (RBI) has revealed its new guidelines on the digital lending process in a move to protect borrowers.

According to LiveMint, the central bank has given regulated entities until November 30^th to put in place adequate systems and processes to ensure existing digital loans comply with fresh lending guidelines.

The new norms will be relevant to both existing customers availing fresh loans to new customers getting onboarded.

The RBI said, “It is reiterated that outsourcing arrangements entered by Regulated Entities (REs) with a Lending Service Provider (LSP)/ Digital Lending App (DLA) does not diminish the REs’ obligations and they shall continue to conform to the extant guidelines on outsourcing.”

Under the new guidelines, all loan disbursals and repayments are mandated to be executed only between the bank accounts of the borrower and the RE without any passthrough/pool account of the LSP or any third party. In addition, an automatic increase in credit limit without the consent of the borrower is banned.

The RBI has also directed that any fees or charges payable to LSPs in the credit intermediation process shall be paid directly by RE and not by the borrower.

Furthermore, a cooling off/look-up period during which the borrowers can exit digital loans by paying the principal and the proportionate APR without any penalty shall be provided as part of the loan contract.

The RBI remarked, “The REs are advised to ensure that the LSPs engaged by them and the DLAs (either of the RE or of the LSP engaged by the RE) comply with the guidelines contained in this circular.”

The central bank also advised that the instructions contained in the circular should be applicable to the existing customers availing fresh loans and to new customers getting onboarded.

RBI added, “REs shall be given time till November 30, 2022, to put in place adequate systems and processes to ensure that ‘existing digital loans’ (sanctioned as on the date of the circular) are also in compliance with these guidelines in both letter and spirit.”