The Reserve Bank of India RBI has released guidelines for digital lending, listing companies allowed in business, rules for loans and data collection, and how fees are charged.
Digital lenders are of three kinds: those regulated by the RBI, those authorised as per other statutory provisions, but not regulated by RBI, and entities lending outside the purview of any statutory provisions.
The guidelines are aimed at the first category, essentially entities regulated by the central bank and the lending service providers LSPs engaged by them.
The regulators controlling authority may consider formulating or enacting appropriate rules regulations on entities falling into the second category, based on the recommendations of the Working Group of Digital Lenders, as regards entities falling in the second category.
The working group suggested specific legislation and institutional interventions for the Central Government to be considered to curb the illegitimate lending activity carried out by such entities, for entities in the third category.
The regulated entities must disburse loans and take repayments between the bank accounts of the borrower and the regulated entity without any pass-through pool account of the LSP or any third party.
Fees to LSPs in the credit intermediation process have to be paid directly by the regulated entity and not by the borrower. The cost of digital loans in the form of annual percentage rate APR must be disclosed to borrowers. The central bank has said that there can't be an automatic increase in the credit limit without the consent of the borrower.
DLAs have to have clear audit trails and need-based data collected by apps, with prior explicit consent of the borrower.
The option to revoke previously granted consent and delete data collected by the DLAs LSPs are also provided by the apps.
The central bank has mandated that all loans that are sourced through DLAs must be reported to Credit Information Companies CICs by regulated entities regardless of their nature or tenor. All new products extended by regulated entities over merchant platforms involving short-term credit or deferred payments must be reported to CICs by the regulated entities.
A number of buy now pay later players were not reporting the loans they were offering to CICs, which is particularly important.