RBI Releases Most Anticipated Digital Lending Guidelines

The new guidelines will be applicable to all the financial institutions that extend digital loans

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The Reserve Bank of India (RBI), on Wednesday, released the most anticipated digital lending guidelines to regulates the lending service providers. The new guidelines will be applicable to all the financial institutions that extend digital loans.

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The RBI addresses the concerns related to the inappropriate practices happening in the digital lending ecosystem. It states that, "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 new guidelines allow the borrower to decide not to continue with the loan by paying the proportionate interest rate without any penalty. Lenders can collect the personal data of the borrowers only with the consent of them and also, they are allowed to collect the need-based data only. It also emphasis that there must be a clear audit trails and an option to delete the data collected from the borrowers.

As for entities which are authorized to carry out lending as per other statutory or regulatory provisions but not regulated by RBI, the respective regulator may consider formulating rules on digital lending based on the recommendations of the working group. For the entities lending outside the purview of any statutory or regulatory provisions, the working group has suggested specific legislative and institutional interventions for consideration by the central government to curb the illegitimate lending.

"The guidelines are a nuanced blueprint that will help the digital lending ecosystem to continue to grow in a responsible and sustainable manner. At the same time, RBI has clearly addressed the need to stamp out incipient trends that are antithetical to the best practices related to customer protection and data security. We also look forward to engage with RBI in the coming months as the industry moves towards forming a self-regulatory organization (SRO) to promote adherence to these recommendations," said the digital lenders' association of India (DLAI), in a statement.

Jitin Bhasin, founder and CEO of SaveIN, a buy now pay later platform for healthcare, said that the guidelines for digital lending as stipulated by RBI are fairly clear, enabling and supportive of orderly growth in the digital lending and fintech ecosystem.

"We at SaveIN, welcome the regulator's focus on ensuring transparency in pricing, flow of money, reporting, customer consent and data privacy when it comes to facilitating digitized credit. As a responsible fintech lending company, we are already conforming to almost all the stipulated items and I believe this clarity will set the tone for rapid growth of credit penetration in India," said Bhasin.

As per existing RBI guidelines, if any complaint lodged by the borrower is not resolved by the RE within stipulated 30-day period, they can lodge a complaint under the central bank's integrated ombudsman scheme.