RBI issues new digital lending guidelines

Mumbai: Expediting preventive action against increasing frauds and customer grievances related to digital lending, including lending through online platforms and mobile apps, the Reserve Bank of India has issued instructions to all banks and non-banking institutions.

The central bank’s circular on Saturday strongly advised all re gistered entities (REs), including commercial banks, cooperative banks and non-banking financial companies, and their lending service providers (LSPs) to appoint nodal grievance redressal officer to deal with FinTech/digital lending applications (DLAs) and related complaints.

The RBI’s instructions are based on the guidelines suggested by a working group on ‘digital lending’ constituted in January 2021. This working group had released detailed guidelines to this effect on August 10.

In addition to the appointment of nodal of ficers, RBI also insists that the details of the grievance redressal officer shall be prominently indicated on the website of the RE, its LSPs and on DLAs, as applicable. The RBI’s instructions are applicable to the ‘existing customers availing fresh loans’ and to ‘new customers’ from the date of the circular.

However, to ensure smooth transition, REs will be given time until November 30, to put in place adequate systems and processes to ensure that ‘existing digital loans’ (sanctioned till the date of the circular) are also in compliance with these guidelines in both letter and spirit.

Of late, innovative methods of designing and delivery of credit products and their servicing through digital lending route have acquired prominence. However, certain concerns have also emerged which, if not mitigated, may erode the confidence of members of the public in the digital lending ecosystem.

The concerns are 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.