RBI to introduce regulatory framework for lending business, promises fair practices and data privacy

On Friday, Reserve Bank of India (RBI) Governor Shaktikanta Das said the central bank plans to introduce a unified regulatory framework for web-aggregation of loan products (WALP) across all regulated entities. This new initiative aims to ensure fair practices, customer protection, and data transparency.

The Governor said there is a need for a comprehensive approach, stating that existing guidelines on connected lending are limited in scope and lack uniform applicability to all regulated entities.

WALP entails aggregation of loan offers from multiple lenders on an electronic platform, which enables the borrowers to compare and choose the best available option to avail loan from one of the available lenders.

Per the Statement on Developmental and Regulatory Policies, RBI says, “It has been decided to bring such loan aggregation services offered by the Lending Service Providers (LSPs) under a comprehensive regulatory framework. The framework will focus on enhancing the transparency in the operations of WALPs, increasing customer centricity and enabling the borrowers to make informed choices."

Adhil Shetty, CEO, BankBazaar.com, said, "The RBI announced today that Lending Service Providers (LSPs) would be covered under a comprehensive regulatory framework. We believe this is the next step to the digital lending guidelines issued last August. The measures outlined in the digital lending guidelines have given a boost to transparency in financial services and we have seen a number of positive developments such as the Key Fact Sheet that enable the borrowers to make informed choices." Shetty further said, "We welcome a regulatory framework that will bring in further transparency and believe that such a framework will go a long way in weeding out bad actors and support the growth of customer-centric lending practices. Considering the pace at which digital lending is growing, sound regulatory support will help in generating trust in the ecosystem by keeping customers informed and encouraging them to access credit safely and securely."

The unified framework bolsters oversight over pricing and credit management by regulated entities. It tackles worries linked to lending to individuals who hold sway over a lender's choices.

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Harsh Dugar, Executive Director at Federal Bank, said, "Announcing a framework on Web Aggregation of Loan products is a welcome move to enable responsible growth in digital lending by ensuring fair practices, customer protection and transparency. Cloud facilities for financial institutions (FIs) are a step toward ensuring data privacy, data security, and integrity."

Analysts indicate that this choice correlates with the bank loans given to Non-Banking Financial Companies (NBFCs).

Saif Khan, Chief Growth Officer at PayNearby, said, "With this policy statement, the RBI has reiterated that responsible Digital Lending is the way to go for deepening credit penetration in India. The introduction of a regulatory framework for WALPs is a progressive step and consistent with RBI's approach of ensuring customer safety and centricity while managing financial systemic risks through appropriate  regulation."