The Reserve Bank of India (RBI) has tightened norms for digital lending to prevent the charging on excessive rates and also check unethical loan recovery practices.
According to Business Standard, under the new norms, all loan disbursals and repayments are required to be executed only between the bank accounts of borrower and the regulated entities without any pass-through/pool account of the Lending Service Providers.
Any fees, charges that are payable to LSPs in the credit intermediation process should be paid directly by RE and not by the borrower, the Reserve Bank said.
The RBI said the regulatory framework to support orderly growth of credit delivery through digital lending methods while mitigating the regulatory concerns has been firmed up.
The RBI said, “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.”
The RBI’s regulatory framework is focused on the digital lending ecosystem of RBI’s Regulated Entities (REs) and LSPs engaged by them to extend various permissible credit facilitation services.
It further said a standardised Key Fact Statement (KFS) must be provided to the borrower before executing the loan contract. Further, an automatic increase in credit limit without explicit consent of borrower is prohibited.
The Bank previously issued guidelines that underline existing banks can open digital banking units to offer products and services around-the-clock.
The guidelines detailed that the products and services to be provided at a digital banking unit include opening of accounts, cash withdrawal and deposit, KYC updating, loans and complaint registrations.
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