RBI releases regulatory framework for digital lending

The Reserve Bank of India (RBI) released the regulatory framework for digital lending.12 The framework is based on the report of the Working Group on Digital Lending (Chair: Mr. Jayant Kumar Dash). The regulatory framework focuses on RBI regulated entities (such as banks) and lending service providers (LSP) engaged by such entities for credit facilitation services.

Key features of the framework include:

▪ Customer protection: All loan disbursals and repayments are to be executed between the bank accounts of the borrower and the regulated entity. Loans cannot be passed through or pooled in the account of an LSP or any other third party. Any fees or charges payable to the LSP will be paid by the regulated entity and not by the borrower. An all-inclusive cost of digital loans is required to be disclosed to the borrower and an automatic increase in credit limit without the explicit consent of the borrower has been prohibited under the framework. Regulated entities and their LSPs should have a suitable nodal grievance redressal officer for addressing fintech/digital lending related complaints.

▪ Data protection: Data collected by digital lending applications should be need-based, have clear audit trail, and be done with the explicit consent of the borrower. Borrowers may be provided with an option to accept or deny the consent for use of specific data. Further, the borrower should also be provided with the options to revoke previously granted consent and delete their data. All data should be stored in servers located in India.

▪ Reporting requirements: All loans sourced through digital lending applications must be reported to credit information companies (CICs). All new digital lending products extended by regulated entities over merchant platforms, which involve short-term credit or deferred payment, must be reported to CICs.