RBI releases draft regulation for web aggregation of loan products in digital lending

The Reserve Bank of India on Friday released draft guidelines for a regulatory framework for the aggregation of loan products by lending service providers (LSP). This has been done to enhance transparency and give borrowers prior information about potential lenders.
 
LSPs are third-party entities that banks or non-banking finance companies (NBFCs) engage to perform some of their functions, such as customer acquisition, underwriting, and loan recovery, among others, on digital platforms. In some cases, a regulated entity can also act as an LSP. 

The RBI said banks and NBFCs should ensure that their LSPs provide a so-called digital view of all the loan offers available to the borrower from all the willing lenders that the LSP has arrangements with.
 
The digital view, the RBI said, should include the name of the bank of the NBFC extending the loan, the amount and tenor of loan, the annual percentage rate and other key terms and conditions in a way that enables the borrower to make a fair comparison between various offers.

After the December 2023 monetary policy meeting, the central bank said it would lay down a regulatory framework for web aggregation of loan products. This comes after the central bank observed some concerns of loan products harming customers’ interest.

“This is expected to result in enhanced customer centricity and transparency in digital lending,” RBI Governor Shaktikanta Das said in his monetary policy statement.

The central bank had introduced the regulatory framework for digital lending in August-September 2022. “The digital lending ecosystem also comprises services that aggregate loan offers from lenders (called web-aggregation of loan products) for guidance of customers,” he said.

The RBI has said the LSP can adopt any mechanism to ascertain the willingness of the lenders to offer a loan. LSPs should follow a "consistent approach" that must be disclosed suitably on their website.
 
A link to the key facts statement (KFS) must also be provided in respect of each of the regulated entities.
 
The content displayed by the LSP should be "unbiased" and should not directly or indirectly promote or push a product of a particular lender, including by use of any practices or deceptive patterns, to mislead borrowers into choosing a particular loan offer, the central bank said.
 
The RBI has invited comments from stakeholders on the draft circular by May 31.

"As the Reserve Bank of India prepares to roll out new regulatory frameworks for web aggregators of loan products, it is crucial for stakeholders to understand the implications for compliance and operational transparency. These guidelines are not merely procedural but pivotal in shaping a more robust and transparent digital lending landscape. They promise to enhance consumer protection and establish clearer accountability for financial entities, ensuring that digital platforms align with national standards of financial integrity and consumer trust," said Nilesh Tribhuvann, Managing Partner White & Brief - Advocates & Solicitors.