Topics In Demand
Notification
New

No notification found.

Reserve Bank of India: Implementation of the recommendations of the working group on digital lending
Reserve Bank of India: Implementation of the recommendations of the working group on digital lending

August 10, 2022

251

0

Backdrop

In January 2021, the Reserve Bank of India (RBI) had constituted a working group on digital lending including lending through online platforms and mobile apps (WGDL). The objective of the working group was to – evaluate kinds of digital lending activities and their penetration, identify risks posed by unregulated digital lending platforms, recommend regulatory changes and measures for regulating digital lending, recommend a fair practices code for digital lending players, enhanced consumer protection, and measures for robust data governance and privacy measures. The Report, released in November, had made suggestions on barring first loss default guarantee, setting up self-regulatory organisations (SRO), requiring disbursement of loans directly to the bank account of borrowers, cooling off period for exiting digitally obtained loans amongst others.

You can read NASSCOM’s recommendations on the WGDL here.

RBI’s Guidelines on Digital Lending

The RBI’s guidelines on digital lending (Guidelines) will be applicable on entities regulated by the RBI and are permitted to carry out lending business. The Annex-I of the Guidelines has recommendations which have been accepted for immediate implementation by the RBI Regulated Entities (REs), Annex-II has recommendations which have been accepted in-principle but require further deliberation, and Annex-III has recommendations to the Government of India. The key highlights of the Guidelines are:

  1. Consumer protection and conduct requirements: For consumer protection and conduct requirements, the Guidelines require the following amongst others:
  1. REs will be required to ensure that all loan servicing repayment has to be executed directly in their bank account without any pass-through/pool account. There shall be exceptions to it on the basis of regulatory mandate, flow of money between REs for co-lending transactions, and disbursals where loans are mandated for specified end use.
  2. REs will be required to ensure that any fees etc, is to be paid to the lending service providers (LSPs) directly by them.
  3. Cost of digital loans has to be disclosed upfront by the REs.
  4. It will be a responsibility of REs to ensure that the LSPs have a nodal grievance redressal officer to deal with FinTech/ Digital Lending related complaints/issues etc. These officers shall be responsible to deal with complaints related to digital lending apps. If not resolved, a customer/borrower shall be eligible to lodge a complaint under the RBI’s Integrated Ombudsman Scheme.
  5. REs will be required to provide a key fact statement in standardised format for all digital lending products.
  6. A cooling off period will have to be provided to the borrowers in case of digital loans.
  7. Automatic increase in credit limits has been prohibited except for explicit consent of borrower.
  1. Technology and data requirements
  1. DLAs are required to collect only need-based data and with the prior and explicit consent of the borrower. Such consent must be auditable.
  2. The borrower will be provided with an option to give or deny consent for use of specific data, restrict disclosures to third parties, revoke consent already granted etc.
  3. REs will have to ensure that data is stored in servers located within India.
  1. Regulatory framework
  1. Any lending done through digital lending apps (DLAs) will have to be reported to credit information companies.
  2. Extension of new digital lending products by REs over a merchant platform involving short term, unsecured/ secured credits or deferred payments need to be reported to credit bureaus by the RE.

For more information, kindly write to apurva@nasscom.in.


That the contents of third-party articles/blogs published here on the website, and the interpretation of all information in the article/blogs such as data, maps, numbers, opinions etc. displayed in the article/blogs and views or the opinions expressed within the content are solely of the author's; and do not reflect the opinions and beliefs of NASSCOM or its affiliates in any manner. NASSCOM does not take any liability w.r.t. content in any manner and will not be liable in any manner whatsoever for any kind of liability arising out of any act, error or omission. The contents of third-party article/blogs published, are provided solely as convenience; and the presence of these articles/blogs should not, under any circumstances, be considered as an endorsement of the contents by NASSCOM in any manner; and if you chose to access these articles/blogs , you do so at your own risk.


images
Apurva Singh
Senior Policy Associate

Write to me for all things related to FinTech, Drones, Data and Gaming

© Copyright nasscom. All Rights Reserved.