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RBI comes up with fresh guidelines for digital lending, effective immediately

The Reserve Bank of India (RBI) on August 10 published a notification describing its "regulatory stance" on online lending.

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New Delhi: The Reserve Bank of India (RBI) on August 10 published a notification describing its “regulatory stance” on online lending. The official recommendations were released by the central bank Friday.

The rules provide that all loan payments must only be made between the borrower’s and the regulated entity’s bank accounts (RE). The accounts of loan service providers (LSPs) and their digital lending apps are among the accounts that REs must make sure the disbursal is not made to (DLAs).

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Any fees or charges due to the LSPs must be paid in full by REs; the borrower cannot be charged directly by the LSP. Any penalties assessed to debtors must be based on the amount of the loan that is still owed. The major fact statement must include an annualised disclosure of penalties to debtors (KFS).

For all digital lending products, REs must reveal up front the borrower’s total cost of the loan and must give the borrower a KFS prior to contract completion.

REs are now have to prominently publish a list of their DLAs, and LSPs engaged by them on their website and they make sure such LSPs/DLAs engaged by them do not store personal information of people who have borrowed, except some basic minimal data.

Additionally, the RBI has declared that similar rules apply to digital loans made by:

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All commercial banks

State cooperative banks, district central cooperative banks, and primary (urban) cooperative banks.
Housing financing firms are among the non-banking financial institutions (NBFCs) (HFCs).
Beginning on September 2, the instructions also apply to “current customers availing new loans” and “new consumers getting onboarded.”

The RBI did add, however, that in order to guarantee a smooth transition, REs will be given till November 30 to put in place the necessary systems and procedures to guarantee that “existing digital loans” also adhere to these regulations.

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