Digital lending rules: RBI to introduce updated digital lending rules from today. Key points here

New digital lending rules by RBI: The Reserve Bank of India (RBI) has tweaked the digital lending guidelines, which will come into effect today, December 1.  

The revised digital lending guidelines aim to smoothen the digital lending process and also protect consumers from unusually high-interest rates from the lenders. The RBI had said before that the new guidelines will keep a tab on unethical loan recovery practices. In August, the central bank first announced the digital lending rules. In September, it floated more detailed guidelines. Following this, RBI asked all regulated entities involved in digital lending to comply with the new lending guidelines till November 30. 

What are the new rules? 

• The RBI said that all loan disbursals and repayments are to be executed only between the bank accounts of the borrowers and the regulated entities such as the banks and the NBFCs. 
• These guidelines will cover areas across lending processes, disclosures, technology, and data gathering by regulated entities, their digital lending applications (DLAs), and lending service providers (LSPs) engaged by them.  
• Besides, any fees, charges, etc., payable to LSPs in the credit intermediation process shall be paid directly by regulated entities (REs) and not by the borrower, the RBI had said in its statement. 
• The RBI had said before executing the loan contract, the REs should provide a standardised key fact statement to the borrower.  
• All-inclusive costs of digital loans should be given in the form of annual percentage rate (APR) to the borrowers and APR will also form part of KFS. 
• 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 borrower’s consent on the increase in the credit limit would be a must. An automatic credit increase without consent would be prohibited. 
• The central bank added that all involved REs should see that they have a suitable nodal grievance redressal officer to deal with fintech/ digital lending-related complaints. Such grievance redressal officers shall also deal with complaints against their respective digital lending apps. 
• If any complaint lodged by the borrower is not resolved by the RE within the stipulated period (currently 30 days), he/she can lodge a complaint under the Reserve Bank – Integrated Ombudsman Scheme. 

Industry voices

“The revised RBI's guidelines on digital lending pave the way towards a secure, inclusive, and accessible digital lending ecosystem. It empowers customers with full transparency about the information & data that is being accessed by the lenders, giving them control over their own personal information. The RBI has also standardised disclosures, therefore, enabling customers to make more informed decisions. We anticipate some filtration when these suggestions take effect because it is the responsibility of all companies, including unregulated organizations classified as LSPs (Lending Service Providers), to adhere to these regulations,” said Souparno Bagchi, COO, Balancehero India. 

“The guidelines aim to tackle concerns like unscrupulous lending practises and involvement of third parties, misselling, and data privacy. We have witnessed fintech players, making requisite tweaks in their business models to stay compliant with the RBI’s guidelines. While the new guidelines have increased the cost of compliance for fintechs, the incumbents have demonstrated a positive adoption. The involved stakeholders understand the potential of fintechs in the country’s last-mile, effective credit delivery as well as the need for maintaining a compliant operational environment to usher a healthy and sustainable growth of the sector,” said Nageen Kommu, Founder & CEO, Digitap. 

“Licensed and compliant players will have an edge over fintechs with other NBFC partnerships in the near future, and are likely to see a rising market share. It is a welcome move. The RBI wants to ensure that there is the responsibility for the institutions they regulate. For the unregulated entities classified as LSPs (Lending Service Providers), there is almost an equal burden to abide by these rules. As a result, we foresee some level of filtration as these guidelines go into effect. This decision by the RBI will protect consumers and offer a level playing field from the customers’ perspective,” said Anil Pinapala, CEO and Founder, Vivifi Finance.