RBI implements revised digital lending norms

Under the new digital lending norms, all loan disbursals and repayments will be made only between the bank accounts of borrower and banks or NBFCs

   
RBI digital lending norms

The Reserve Bank’s modified guidelines on digital lending for customers who had taken loans prior to Sept 2 will come into force from December 1.

The guidelines seek to protect customers from unethical loan recovery practices. In order to ensure a smooth transition, the RBI had given time till November 30 to its Regulated Entities to put in place adequate systems and processes to to ensure compliance of the guidelines for digital loans sanctioned before September 2.

Under the new norms, all loan disbursals and repayments are required to be executed only between the bank accounts of borrower and the regulated entities (like banks and NBFCs) without any pass-through/ pool account of the Lending Service Providers (LSPs).

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Also, “any fees, charges, etc, payable to LSPs in the credit intermediation process shall be paid directly by RE and not by the borrower”, the Reserve Bank said in a press release while conveying the regulatory stance.

Executive Chairman of Andromeda Loans, V. Swaminathan, said, that since digital loans and online repayments have gained more prominence post-pandemic, the need of the hour is competent systems and processes that would further strengthen data privacy and security of confidential information shared between customers and regulated entities.

“While the cost of compliance may be significant for businesses that haven’t revamped their core business models, we need to trust the central bank as it tackles government issues and consumer complaints related to digital lending platforms, such as the deployment of arbitrary collection strategies,” he said.

While issuing the guidelines in August, the RBI had said the instructions are applicable to the ‘existing customers availing fresh loans’ and to ‘new customers getting onboarded’.

Anil Pinapala, CEO and Founder, Vivifi Finances said the RBI has standardised the cost disclosures with a uniform Key Fact Statement (KFS) that details an all-in APR (Annual Percentage Rate), which factors in all the fees and interest that are being charged to the customers, empowering them with the ability to compare this rate across banks and NBFCs.

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“Licensed and compliant players will have an edge over fintechs with other NBFC partnerships, and are likely to see rising market share in the future,” Pinapala said, and added the decision by the RBI will protect the consumer and level the playing field from the customer’s perspective.

Nageen Kommu, Founder & CEO, Digitap said the RBI’s guidelines on digital lending is a crucial development in the credit ecosystem, considering the rapid rise of profound credit tools and the country’s progressive financial inclusion imperative.

“The guidelines which aim to tackle concerns like unscrupulous lending practises and involvement of third parties, mis-selling and data privacy. We have witnessed fintech players, making requisite tweaks in their business models to stay compliant with the RBI’s guidelines. Some players have updated their terms of agreements as well as related processes,” said Kommu.

Issuing a detailed set of guidelines for digital lending, the RBI mentioned the concerns primarily related to unbridled engagement of third parties, mis-selling, breach of data privacy, unfair business conduct, charging of exorbitant interest rates, and unethical recovery practices.

The RBI had constituted a Working Group on ‘digital lending including lending through online platforms and mobile applications’ (WGDL) on January 13, 2021.

The Reserve Bank’s regulatory framework is focused on the digital lending ecosystem of RBI’s Regulated Entities (REs) and Lending Service Providers (LSPs) engaged by them to extend various permissible credit facilitation services.

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Under the new norms, an automatic increase in credit limit without explicit consent of borrower is prohibited.

RBI-regulated entities will have to ensure that they and the LSPs engaged by them 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 DLAs. The details of the grievance redressal officer shall be prominently indicated on the website of the RE, its LSPs and on DLAs, as applicable,” the guidelines said.

Digital Lending Apps (DLAs) refer to mobile and web-based applications with user interface that facilitate borrowing by a borrower from a digital lender. DLAs will include apps of REs as well as operated by LSPs which are engaged by REs for extension of any credit facilitation services.