RBI’s new digital lending guidelines: How will borrowers benefit?

To make sure the interests of the borrowers are protected, and the money cycle takes place through legitimate apps with a genuine KYC structure and audit mechanism, the Reserve Bank of India has recently introduced a regulatory framework for digital lending. As a huge number of fake applications are being reported and the borrower incurs losses, this move is highly appreciated. To help borrowers understand the guidelines better, we’ve done the groundwork.

Key takeaways

1. What changes do the new digital lending guidelines recommend?

2. How do the updated lending guidelines benefit borrowers?

Under the new rules, there is now a “look-in” period during which the borrower can change their mind about whether or not to keep the loan and just pay off the balance and interest.  

What changes do the new digital lending guidelines recommend?

  It is important for borrowers to know about the new digital lending framework for an enhanced borrowing experience. There are a few things that lending company and businesses need to have a look at.

• In the future, digital lenders who want to get personal information from their customers will have to get their customers’ permission and will only be able to get the information they need.
• There needs to be a way to delete borrower data and a clear audit trail.
• Money borrowed under the new regulations cannot go through the service provider’s account but must go straight from the bank or finco to the customer.
• Another important point to keep in mind is that both the lenders and the LSP need to maintain a grievance redressal officer to deal with fintech and digital lending-related complaints.
• Any new e-loan is disbursed by a third party, be it a digital partner or LSP. The lending institution is obligated to make public a list of all such LSPs and digital lending applications. From now on, all new digital loans, including those taken out for short-term credit, must be reported to credit bureaus.
• Lending institutions have a responsibility to provide a digital key facts statement to all borrowers before finalizing a loan agreement.

How do the updated lending guidelines benefit borrowers?

 

• With the latest update in the field of digital lending, no borrower is required to pay any fees or any other additional charges to the Lending Service Provider (LSP). Such expenses should be taken care of by the Regulatory Entity.

• To better understand the terms of a loan, borrowers might seek a Key Fact Statement (KFS) from the appropriate regulatory agency. The KFS should incorporate an APR for the cost of digital borrowing (APR). Any business operating within India and regulated by the Reserve Bank of India must strictly adhere to a cost-cutting directive.
• The updated guidelines also state that the credit limit can’t be increased without the borrower’s consent.
• Any complaint raised from the borrower’s end must be resolved within 30 days. In case the complaint is not resolved within 30 days, the borrower can directly approach RBI.
• Digital lending apps are bound to ensure that the personal information of the borrower is always protected. In addition, such data gathering ought to be requirement-driven and provide transparent audit trails.

The updated lending guidelines will help borrowers to feel more at ease with the specified cooling-off period. The appointment of a nodal grievance redressal officer will further result in borrower protection and help identify consumer grievances on a continuous basis, thus helping to improve the digital lending sector and the overall development of FinTech in India. There will be more transparency about the fees and interest rates associated with a loan thanks to the Standardized Key Fact Statement.  

Bonus read

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