RBI Issues Norms for Digital Lending
The universe of digital lenders is classified into three groups.
Reserve Bank of India/PTI images
New Delhi: The Reserve Bank is statutorily mandated to operate the credit system of the country to its advantage. In this endeavour, the Reserve Bank has encouraged innovation in the financial system, products and credit delivery methods while ensuring their orderly growth, preserving financing stability and ensuring protection of depositors’ and customers’ interest.
Recently, innovative methods of designing and delivery of credit products and their servicing through Digital Lending2 route have acquired prominence. However, certain concerns have also emerged which, if not mitigated, may erode the confidence of members of public in the digital lending ecosystem. The concerns primarily relate 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 universe of digital lenders is classified into three groups –
- Entities regulated by the RBI and permitted to carry out lending business;
- Entities authorized to carry out lending as per other statutory/regulatory provisions but not regulated by RBI;
- Entities lending outside the purview of any statutory/ regulatory provisions.
RBI’s regulatory framework is focused on the digital lending ecosystem of RBI’s Regulated Entities (REs) and the Lending Service Providers (LSPs)3 engaged by them to extend various permissible credit facilitation services. As regards entities falling in the second category [3(b) above], the respective regulator/ controlling authority may consider formulating or enacting appropriate rules/regulations on digital lending based on the recommendations of WGDL.
For the entities in the third category [3(c) above], the WGDL has suggested specific legislative and institutional interventions for consideration by the Central Government to curb the illegitimate lending activity being carried out by such entities.
Customer Protection and Conduct Issues –
All loan disbursals and repayments are required to be executed only between the bank accounts of borrower and the RE without any pass-through/ pool account of the LSP or any third party.
Any fees, charges, etc., payable to LSPs in the credit intermediation process shall be paid directly by RE and not by the borrower.
A standardized Key Fact Statement (KFS) must be provided to the borrower before executing the loan contract.
All-inclusive cost of digital loans in the form of Annual Percentage Rate (APR)6 is required to be disclosed to the borrowers. APR shall also form part of KFS.
Automatic increase in credit limit without explicit consent of 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.
REs shall 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 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.
As per extant RBI guidelines, 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 (RB-IOS)