RBI mandates norms for digital lending to curb malpractice

The Reserve Bank of India (RBI) on August 10 mandated that digital loans must be credited directly in the bank accounts of borrowers and not through any third party, as it put in place tight  regulations to curb rising malpractice in digital lending space.

In addition, the RBI said digital lending entities and not the borrowers should pay fees or charges payable to Lending Service Providers (LSPs) in the credit intermediation process. Issuing a detailed set of guidelines for digital lending, the central bank mentioned about 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 RBI had constituted a Working Group on 'digital lending including lending through online platforms and mobile applications' (WGDL) on January 13, 2021. It further said regulatory framework to support orderly growth of credit delivery through digital lending methods while mitigating the regulatory concerns has been firmed up.

"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 or entities permitted to do so under any other law," it said. The Reserve Bank's regulatory framework is focused on the digital lending ecosystem of RBI's Regulated Entities and the LSPs engaged by them to extend various permissible credit facilitation services.

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