16 August 2022

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Reserve Bank of India releases regulatory framework for digital lending


A regulatory framework to support orderly growth of credit delivery through digital lending methods while mitigating the regulatory concerns has been issued by RBI. This regulatory framework is based on the principle that lending business can be carried out only by entities that are either regulated by the Reserve Bank. The Reserve Bank’s regulatory framework is focused on the digital lending ecosystem of RBI’s Regulated Entities (REs) and the Lending Service Providers (LSPs) engaged by them to extend various permissible credit facilitation services.

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.

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) 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. Data collected by DLAs should be need based, should have clear audit trails and should be only done with prior explicit consent of the borrower.

Tags : Framework Digital lending Release

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