RBI issues New Digital Lending Guidelines for Banks

The Reserve Bank of India (RBI) has issued guidelines to all lenders, including banks, in order to prevent the misuse of borrower data obtained through digital lending apps.

It is reiterated that outsourcing arrangements entered by Regulated Entities (REs) with a Lending Service Provider (LSP)/ Digital Lending App (DLA) does not diminish the REs’ obligations and they shall continue to conform to the extant guidelines on outsourcing1. The REs are advised to ensure that the LSPs engaged by them and the DLAs (either of the RE or of the LSP engaged by the RE) comply with the guidelines contained in this circular.

It is further advised that, as of the date of this circular, the instructions included in it will apply to “current customers” who are obtaining new loans and “new customers” who are joining the company. To facilitate a smooth transition, REs will have until November 30, 2022 to put in place the necessary systems and procedures to guarantee that “existing digital loans” (approved as of the date of the circular) also adhere to these regulations in letter and spirit.

Sections 21, 35A, and 56 of the Banking Regulation Act of 1949, Sections 45JA, 45L, and 45M of the Reserve Bank of India Act of 1934, Sections 30A and 32 of the National Housing Bank Act of 1987, Section 6 of the Factoring Regulation Act of 2011, and Sections 11 of the Credit Information Companies (Regulation) Act of 2005 all provide the legal authority for the issuance of these directives.