RBI tightens norms for digital lending

The RBI on Wednesday mandated that digital loans must be credited directly to the bank accounts of borrowers and not through any third party, as it put in place strict norms to curb rising malpractice in digital lending space. 

Besides, the Reserve Bank 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 RBI mentioned 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.