RBI Issues Long-Awaited Guidelines For Digital Lending

The framework for regulation is applicable to lending companies that are controlled by RBI and authorized to conduct lending business

The RBI has not just outlined the requirements for business conduct, but has also stressed the need for data protection of customers

Increases in credit limit that are automatic without the explicit consent of the borrower is now banned, as per the guidelines

The Reserve Bank of India (RBI) on Wednesday (August 10) published the first of long-awaited guidelines for digital lending , based in the guidelines of the working committee to alleviate the concerns about the changing lending environment.

For those entities licensed to conduct lending in accordance with other regulatory or statutory rules, but are not regulated by the RBI The central bank stated that the relevant regulator and the controlling authority may contemplate drafting or passing appropriate rules for digital lending, based on the recommendations of the working group.

Read more Alibaba is reported to have laid off around 10,000 employees in just three months

The central bank has issued guidance in three different categories. A few of the recommendations of the working group are now in place to be implemented immediately however, some of the recommendations are accepted in principle, but they will need further study. In addition the central bank’s comments, they stated that certain recommendations need more involvement from and the Centre as well as other stakeholder due to technical difficulties, establishing of institutions and legislative interventions.

Guidelines For Immediate Implementation

In accordance with the guidelines of the RBI for regulated institutions (REs) as well as lending service companies (LSPs) the loan repayments and disbursements would require to be completed between the bank accounts of the both the borrower and RE without any pass-throughor pool account belonging to the LSP or any other third party. Additionally, REs will need to pay any charges and fees due to LSPs as part of the process of credit intermediation.

The LSPs are employed through the REs to offer various credit facilitation options that are permissible.

The central bank announced that the automatic raising of credit limits without the explicit approval of the borrower would immediately be banned. It also suggested the creation of a cooling-off period or look-up time for the borrowers. During this time, borrower can end their digital loan through the payment of principal as well as their proportionate annual percentage rate (APR) without cost, since it’s component of the contract for the loan.

The APR will form part of an uniform Key Fact Statement (KFS) and the total cost of digital loans in the form APR must be made clear to the borrowers.

The REs are also required to submit reports on Credit Information Companies (CICs) in the event that loans are procured via digital lending Apps (DLAs). In addition, if REs offer new lending services via digital merchant platforms that offer the use of deferred or short-term credit and deferred payments, they must be reported to the CICs.

Apart from these regulations In addition to these, in addition, the RBI guidelines also emphasize the protection of customer data.

The DLAs must collect information that is needed-based, and with the explicit and prior consent from the lender. The data collected will be passed through audit trails that are clearly identifiable.

Beware of Digital Lending

It is yet to be determined what the response of the lending industry will be to the new regulations this type of regulations was necessary following numerous and repeated complaints from borrowers about different lending companies. These regulations could also affect lending apps as well as BNPL players such as ZestMoney, UniCard, among other players.

The issues are mainly related to excessive engagement with third parties and mis-selling, infringement of privacy rights, unjust business practices, the charging of high interest rates and unprofessional practices for recovering. Recently, there was a report of allegations that were made against loan recovery representatives of an online loan application for harassing a homeowner who took out a loan through the app.

Read more Gujarat Government Announces Drone Promotion and Usage Policy’ It aims to create employment

The RBI had established the working group that was to create an outline report on lending via digital channels which includes lending through mobile and online platforms beginning at the beginning of January in 2021. The draft report was open for feedback from people who are involved and the general public. The guidelines issued take into account all comments from the public, the RBI stated.

According to various reports the digital lending market is one of the fastest-growing segments of fintech across the nation. The Covid-19 pandemic gave a further stimulation to the sector. In addition the central bank is considering tightening rules for Fintech startups.

In the course of this year’s fiscal year in the year, in the course of the year the RBI also released guidelines concerning non-bank PPIs, which prevented them from loading credits to ewallets used by users and affecting fintech startups like Jupiter, EarlySalary and KreditBee which were forced to stop the transactions of customers using their credit cards.

Estimated at $110 billion by the year 2019, online lending market is projected to reach approximately $350 billion by 2023..

Leave a Reply