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The Reserve Bank of India (RBI) has released the implementation framework for the recommendations of the Working Group on Digital Lending (WGDL), aimed at ensuring orderly growth of digital lending while protecting borrowers’ interests. Digital lending through online platforms and mobile apps has gained prominence in recent years, but concerns such as mis-selling, data privacy breaches, unfair business practices, exorbitant interest rates, and unethical recovery methods have emerged.
The WGDL, constituted on January 13, 2021, submitted its report, which was placed on the RBI website for public comments. Taking into account stakeholder inputs, RBI has finalized a regulatory framework ensuring that only entities regulated by RBI or permitted under any other law can conduct lending business. Digital lenders have been classified into three groups: entities regulated by RBI, entities authorized to lend under other statutory provisions, and entities operating outside any statutory or regulatory framework. RBI’s framework primarily focuses on regulated entities (REs) and their Lending Service Providers (LSPs). Recommendations for entities in the other two categories will be addressed by the respective regulators or the Central Government.
Key measures mandated for immediate implementation include:
Customer Protection and Conduct: Loan disbursals and repayments must occur directly between borrower and RE accounts without any third-party pass-through. Fees payable to LSPs must be borne by the RE, not the borrower. Borrowers must receive a standardized Key Fact Statement (KFS) with full disclosure of the Annual Percentage Rate (APR). Automatic credit limit increases without explicit consent are prohibited, and a cooling-off period must allow borrowers to exit digital loans by paying principal and proportionate interest without penalty. REs and LSPs must appoint a nodal grievance redressal officer, and unresolved complaints can be escalated to the RBI Integrated Ombudsman Scheme.
Technology and Data Requirements: Data collected by Digital Lending Apps (DLAs) must be need-based, collected with explicit consent, and have clear audit trails. Borrowers must have the option to accept or deny consent, revoke prior consent, or request deletion of their data.
Regulatory Reporting: All lending sourced through DLAs must be reported by REs to Credit Information Companies (CICs), including new digital lending products extended over merchant platforms with short-term credit or deferred payments.
Certain WGDL recommendations accepted in principle require further examination or broader engagement with the Government of India for technical, institutional, or legislative interventions. All RBI-regulated entities are required to ensure compliance by themselves and their LSPs/DLAs, with detailed instructions to be issued separately.
The framework reinforces RBI’s commitment to promoting innovation in financial products and delivery methods while ensuring financial stability and consumer protection.
[RBI]