RBI Steps In To Regulate Digital Lending, Makes Borrowing More Transparent For Customers

The Reserve Bank of India (RBI) has announced a slew of measures, to put in place strict norms to curb rising malpractices in the digital lending space. 

All loans disbursed digitally must henceforth be directly credited into the bank accounts of the borrowers, and not through any third party, the RBI mandate states. 

The New RBI Norms

• According to the norms, all loan disbursals and repayments are required to be executed only between the bank accounts of borrower and the regulated entity without any pass through and/or pool account of the lending service provider (LSP) or any third party. 

• Also, any fees, charges etc., payable to LSPs in the credit intermediation process shall be paid directly by the regulated entity, and not by the borrower. 

• A standardised key fact statement (KFS) must be provided to the borrower before executing the loan contract. 

• An all-inclusive cost of digital loans in the form of annual percentage rate (APR) has to be disclosed to the borrowers. APR shall also form part of KFS. Automatic increase in credit limit without explicit consent of the borrower is prohibited. 

• 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 regulated entities have to ensure that they and the LSPs engaged by them shall have a suitable nodal grievance redressal officer to deal with fintech/digital lending related complaints. 

• Such grievance redressal officer shall also deal with complaints against their respective digital lending application (DLAs). 

• The details of the grievance redressal officer shall be prominently indicated on the website of the regulated entity, its LSPs and the DLAs, as applicable. 

• In addition, if any complaint lodged by the borrower is not resolved by the regulated entity within the stipulated period of 30 days, he/she can lodge a complaint under the Reserve Bank – Integrated Ombudsman Scheme (RB-IOS). 

• Also, data collected by DLAs should be need-based, and they should have clear audit trails, and should be done only with prior explicit consent of the borrower.

What It Means For Borrowers 

These much-awaited guidelines by the RBI on digital lending provides the much-needed clarity on regulatory practices, protection of customer interest, and accountability of stakeholders in digital lending. 

“Making various participants in the ecosystem abide by fair practices, the regulator is on the right path to ensure a robust digital lending framework that safeguards the interest of customers in the best possible way,” says Monish Anand, CEO and founder, MyShubhLife, a fintech and lending platform. 

Also, digital lending will no longer be a technology-driven convenience model alone. Rather, it would evolve as a multi-layered system thriving on core fundamentals of banking, thereby putting customer interest first, and providing easier access to organised credit with increased transparency.

The new norms on digital lending by RBI will protect borrowers’ interest by ensuring their credit transactions occur through apps that are compliant and transparent in nature. 

Adds Anand: “Apps that are legitimate and ensure proper know your customer (KYC) process will help build consumer confidence by preventing end-user losses occurring through fraudulent applications.” 

The provision for appointing a nodal grievance redressal officer will also protect borrowers further, and help them raise grievances on an ongoing basis. Data protection of customers will also receive a boost by ensuring that digital lenders provide their customers with options to accept, deny, or consent requests to access their information and restrict it to only specific information required for a loan.

To sum it up, the new RBI norms will ensure an explicit and clear-cut guideline for digital lenders to operate with and safeguard consumers from unscrupulous loan operators or poor industry practices, thus making it secure and sustainable for all stakeholders.