RBI Issues New Regulations for Digital Lenders

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Riddhi Oza

The Reserve Bank of India issued new guidelines to monitor digital lending to prevent digital frauds and malpractices, on August 10. According to the new guidelines issued by RBI, third-party involvement in the transaction of digital loans will be hereby prohibited and the money will be credited directly to the borrower’s account. The guidelines also talked about the Reserve Bank – Integrated Ombudsman Scheme (RB-IOS) under which the borrower can file a complaint if his/her grievances are not resolved within 30 days. 

Further, the borrowers may also be able to deny the usage of their data. They will also have the chance to withdraw the previously provided data from the Digital Lending Apps (DLAs). The norms also favoured the borrowers and directed that the money to the Lending Service Providers (LSPs) should be provided by the DLAs rather than the borrowers and an updated and authentic audit should be maintained by the DLAs. The RBI has emphasized an established statutory framework to enable the orderly growth of credit delivery via digital lending methods. 

The guidelines also noted that RBI’s Regulated Entities (REs), their LSPs, and REs’ Digital Lending Apps will have to follow a standardized Key Fact Statement (KFS) that will be presented to the borrower before signing the loan contract. RBI regulations also directed that all new digital lending products offered by regulated businesses via merchant platforms that involve short-term credit or deferred payments must be disclosed to credit reporting agencies.

In January 2021, the RBI formed a working group to investigate digital lending challenges and recommend legislation. The working group advocated more robust standards for digital lenders in November, including subjecting digital lending apps to a verification process by a nodal agency to be established in conjunction with stakeholders. It also proposed a self-regulatory organisation for those involved in the digital lending ecosystem. While the RBI has accepted some of the regulations, others, while accepted in principle, require additional review, according to the announcement.