Latest news with #PublicDirectoryofDigitalLendingApps
Mint
10-05-2025
- Business
- Mint
Mint Explainer: How RBI's new digital lending rules will impact lenders and borrowers
The Reserve Bank of India on 8 May issued consolidated 'digital lending directions' with two new sets of instructions—one for arrangements by digital lenders or lending service providers (LSPs) having multiple regulated entities (REs), and the second for those on a public directory of digital lenders. Mint breaks down that the new rules mean for lenders and borrowers. Why were the new digital lending rules issued? The central bank said that while it encourages innovation in financial systems, products, and credit delivery methods, certain concerns had emerged around the methods of designing, delivering, and servicing digital credit products, which, in turn, could affect borrowers' confidence in the digital lending ecosystem. These concerns primarily pertain to unbridled engagement of third parties, mis-selling, breach of data privacy, unfair business conduct, charging of exorbitant interest rates, and unethical recovery practices. 'To address these concerns, pursuant to the recommendations made by the 'Working Group on Digital Lending', RBI has, from time to time, issued guidelines to its regulated entities on digital lending. These Directions consolidate the earlier instructions," the banking regulator said in a statement. What is new in the guidelines? The guidelines include RBI's final instructions on 'Transparency in Aggregation of Loan Products from Multiple Lenders'. RBI issued a draft circular on 26 April 2024 and the final rules on 8 May 2025 based on comments and feedback from the public. RBI also issued guidelines regarding operationalisation of the Public Directory of Digital Lending Apps (DLAs). The creation of such a depository of registered digital lenders was announced as part of the Statement on Developmental and Regulatory Policies, which had been issued alongside the monetary policy statement on 8 August 2024. Also read | What RBI's new liquidity coverage ratio rules mean for banks 'These new guidelines hold regulated entities fully accountable for their lending service providers, mandate stringent cybersecurity measures and the localization of data within India, and empower borrowers with greater control over their personal information, including the right to revoke consent and request data deletion," said Utkarsh Bhatnagar, partner at law firm Cyril Amarchand Mangaldas. Key provisions introduce a cooling-off period for borrowers to exit loan agreements and an emphasis on direct control over loan disbursals and repayments, signalling a significant step towards a more transparent and accountable digital lending landscape, he added. What are the instructions for LSPs that have multiple lending agreements? For LSPs having agreements with multiple regulated entities for digital lending, RBI has put the onus on regulated entity partners to ensure compliance with its guidelines. Each regulated partner will need to ensure that LSPs provide a digital view of all loan offers matching a borrower's request and requirements, on their lending platform. Names of unmatched lenders also need to be disclosed in the digital view. Further, while LSPs may adopt any mechanism to match the request of borrowers with multiple loan offers, they should follow a consistent approach for 'similarly placed borrowers and products", RBI said, adding that the mechanism adopted by an LSP and any subsequent changes to this mechanism will need to be 'properly documented". 'They (LSPs) have a lot of work to do to ensure full compliance. The requirements that LSPs present information from multiple LSPs in a comparable and unbiased manner addresses a critical need, i.e., more transparency and clearer choices for borrowers," said Vijay Mani, partner, banking and capital markets leader, Deloitte India. These rules will come into effect from 1 November. Also read | What Sebi's spoofing crackdown means for the stock market How will the 'digital view' help borrowers? The 'digital view' of loan offers from matching lenders is expected to increase transparency for borrowers while also providing a level playing field to all lenders, regardless of their partnerships and size. RBI explained that the 'digital view' of a loan application must include the names of the entities extending the loan offers, the amount and tenor of loan, annual percentage rate, monthly repayment obligation, and penal charges (if applicable). This will need to be displayed in a way that enables a borrower to make a fair comparison between various offers. LSPs will also need to provide a link to the key fact statement with respect to each loan offer. cThe content displayed by the LSP shall be unbiased, objective and shall not directly/ indirectly promote or push a product of a particular RE, including the use of dark patterns/deceptive patterns designed to mislead borrowers into choosing a particular loan offer," RBI said. It added that the ranking of loan offers based on a publicly pre-disclosed metric will not be construed as promoting a particular product. Cyril Amarchand Mangaldas' Bhatnagar said such transparency is essential for promoting ethical lending practices and enhancing confidence in the digital lending ecosystem. 'The new Digital Lending Directions not only ensure that borrowers are fully aware of the terms and conditions of loans offered by different lenders, fostering accountability and reducing the risk of misrepresentation or bias in loan offerings," Bhatnagar said, 'but also support the principles of the draft co-lending regulations, which aim to streamline collaboration between lenders while safeguarding borrower interests." What is a public depository of digital lending applications? The rules for creating a public registry require regulated entities to furnish the details of all the digital lending applications that they have partnered with, through RBI's Centralised Information Management System (CIMS) platform. The platform will be available for reporting by 13 May. Regulated entities have to upload the initial data by 15 June, when the new rules come into effect. The list of digital lending apps will be available on RBI's website by 1 July. The list will get updated automatically as and when REs update the details. Also read | The official 'data fog' on India's covid toll has finally cleared up. Here's what we know now. Why is there a need for a public database of digital lending platforms? Regulated entities or partners will need to report all digital lending applications deployed or joined by them, whether their own or those of other LSPs, either exclusively or as a platform participant. This data will need to be updated as and when additional lending platforms are deployed or in case an engagement with an application ends. The automated publication of data on lending apps will empower borrowers to verify the legitimacy of lending platforms, and help curb fraud and unethical practices, experts said, adding that it will also aid in bolstering borrower protection, building trust in digital lending, and ensuring fair and responsible practices by all stakeholders. RBI said the data is being made available so customers can verify the claim of a digital lending application's association with a regulated entity. It also put the customer care onus on regulated entities, saying all issues and grievances of customers with respect to digital lending applications will need to be addressed and dealt with by a regulated entity directly. 'The public database is a measure that has been in discussion for a while and once implemented, will be an important step in curbing unauthorised or fraudulent applications," said Shilpa Mankar Ahluwalia, partner, head-fintech, Shardul Amarchand Mangaldas & Co., a law firm. 'Transparency and disclosures around multiple loan offers will enable borrowers to evaluate all options and access credit products that best suit their needs." What are the requirements for REs to maintain the depository? A regulated entity's chief compliance officer or a board-designated official will have to certify that the data submitted by the RE is correct, that the digital platforms are compliant with all regulatory instructions, and that details of the digital lending partnerships are 'suitably disclosed" on the regulated entity's website. This person will also need to certify that the digital lending platform has a link to the RE's website, where the customer can access further information about the loan products, lender, the lending service provider, particulars of customer care, link to the customer awareness 'Sachet Portal', and privacy policies, among others. Further, LSPs have to appoint a suitable nodal grievance redressal officer to deal with digital lending-related complaints and issues, and ensure that the data collection and storage by LSPs is in compliance with regulatory norms. 'REs shall ensure that the inclusion of any third party DLAs deployed by them as part of above reporting, shall not be construed by the DLAs or any associated entity as conferring any form of registration, authorization, or endorsement by RBI," the central bank said in its circular. Regulated entities will also need to ensure that such inclusion is not misrepresented in any marketing, promotional, or other materials issued by or on behalf of the digital platforms.
Business Standard
09-05-2025
- Business
- Business Standard
RBI issues Reserve Bank of India (Digital Lending) Directions, 2025
The Reserve Bank of India (RBI) has issued Reserve Bank of India (Digital Lending) Directions, 2025 yesterday. Reserve Bank of India has from time to time issued various directions and circulars on digital lending by Regulated Entities (REs). As part of the efforts to consolidate various regulatory instructions and streamline them, consolidated directions on the subject have been prepared and issued as the Reserve Bank of India (Digital Lending) Directions, 2025 today. Further, instructions on two key aspects have also been included as part of these Directions for the first time. These include Instructions on Digital Lending Transparency in Aggregation of Loan Products from Multiple Lenders and Instructions regarding operationalization of the Public Directory of Digital Lending Apps (DLAs) as announced in the Statement on Developmental and Regulatory Policies dated August 08, 2024. The list of DLAs is being made available on the website for the limited purpose of aiding the customers in verifying the claim of a DLAs association with a RE. Here are the major guidelines set by the central bank: Digital lending by a RE involving a LSP, shall be carried out under a contractual agreement between the RE and the LSP, which clearly defines the respective roles, rights, and obligations of each party thereto. RE shall conduct enhanced due diligence before they enter into an agreement with a LSP for digital lending, taking into account LSP's technical capabilities, robustness of data privacy policies and storage systems, fairness in conduct with borrowers, past records of conduct and ability to comply with all applicable regulations and shall carry out periodic review of the conduct of the LSP vis-?-vis the terms of the contractual agreement and shall take appropriate action in the event of any deviation therefrom. RE shall obtain the necessary information relating to economic profile of the borrower with a view to assessing the borrower's creditworthiness before extending any loan, including, at a minimum, age, occupation and income details. The same shall be kept on record for audit purposes. RE shall ensure that there is no automatic increase in credit limit unless an explicit request is received, evaluated and kept on record from the borrower for such increase. Disbursement of loan by the RE shall always be made into the bank account of the borrower except for disbursals covered exclusively under statutory or regulatory mandate (of RBI or of any other regulator), flow of money between REs for co-lending transactions6 and disbursals for specific end use, provided the loan is disbursed directly into the bank account of the end-beneficiary7. RE shall ensure that in no case, disbursal is made to a third-party account, including the accounts of LSP, except as provided for in these Directions. The borrower shall be given an explicit option to exit a digital loan by paying the principal and the proportionate APR without any penalty during an initial "cooling-off period". The cooling off period shall be determined by the Board of the RE as laid down in their loan policy, subject to the period so determined not being less than one day. For borrower continuing with the loan even after cooling-off period, pre-payment shall continue to be allowed as per applicable RBI guidelines. The RE, and the LSP which has an interface with the borrower, shall designate nodal grievance redressal officers to deal with digital lending related complaints/ issues raised by the borrower. Contact details of the nodal grievance redressal officers shall be prominently displayed on the websites of the RE, its LSP and on the DLA, as well as in the KFS provided to the borrower. The facility of lodging complaint shall also be made available on the DLA and on the website as stated above. It is reiterated that responsibility of grievance redressal shall continue to remain with the RE. RE shall ensure that any collection of data by their DLA and DLA of their LSP is need-based and with prior and explicit consent of the borrower having audit trail. In any case, RE shall also ensure that DLA of RE/LSP desist from accessing mobile phone resources like file and media, contact list, call logs, telephony functions, etc. A one-time access can be taken for camera, microphone, location or any other facility necessary for the purpose of on-boarding/ KYC requirements only, with the explicit consent of the borrower. RE shall ensure that LSP engaged by them do not store personal information of borrower except some basic minimal data (viz., name, address, contact details of the customer, etc.) that may be required to carry out their operations or service within the scope of the RE-LSP agreement. Responsibility regarding data privacy and security of the customer's personal information on an ongoing basis shall be that of the RE. As per the provisions of the Credit Information Companies (CIC) (Regulation) Act, 2005; CIC Rules, 2006; CIC Regulations, 2006 and related guidelines issued by RBI from time to time, RE shall ensure that any lending done through their DLAs and/ or DLAs of LSPs is reported by them to CICs irrespective of its nature/ tenor. RE, including a RE acting as DLG provider, shall put in place a Board approved policy before entering into any DLG arrangement. Such policy shall include, at a minimum, the eligibility criteria for DLG provider, nature and extent of DLG cover, process of monitoring and reviewing the DLG arrangement, and the details of the fees, if any, payable to/ received by the DLG provider, as the case may be.
