आंचललक प्रलशक्षण केंद्र, बेलापरु
RBI Guidelines on Digital Lending (डिजिटल ऋण पर आरबीआई
दिशानििे श)
अभिषे क वर्मा / ABHISHEK VERMA
प्रबं ध क / MANAGER
सं कमय-सदस्य / MEMBER OF FACULTY
Digital Lending
A remote and automated
lending process, largely
by use of seamless digital
technologies for
customer acquisition,
credit assessment, loan
approval, disbursement,
recovery, and associated
customer service.
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Definitions
Lending Service Provider (LSP): An agent of a Regulated Entity who carries out
one or more of lender’s functions or part thereof in customer acquisition,
underwriting support, pricing support, servicing, monitoring, recovery of
specific loan or loan portfolio on behalf of REs.
Digital Lending Apps/Platforms (DLAs): Mobile and web-based applications
with user interface that facilitate digital lending services. DLAs will include app
for extending any credit facilitation services in conformity with extant
outsourcing guidelines issued by the Reserve Bank.
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Definitions
Annual Percentage Rate (APR): APR is the effective annualised rate charged to
the borrower of a digital loan. APR shall be based on an all-inclusive cost and
margin including cost of funds, credit cost and operating cost, processing fee,
verification charges, maintenance charges, etc., and exclude contingent charges
like penal charges, late payment charges, etc.
Cooling off/look-up period: A cooling off/ look-up period is the time window as
determined by the Board of the RE which shall be given to borrowers for exiting
digital loans, in case a borrower decides not to continue with the loan.
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Digital lenders categories
Entities that are authorized to
Entities that are regulated by RBI
carry out lending by other Entities that are lending without
and permitted to carry out
regulatory/statutory provisions any statutory/regulatory approval
lending operations
and are not regulated by RBI
WG- Gist of recommendations
Legislation to
Verification Setting up of prevent illegal Code of conduct
of DLAs SRO for recovery
DL activities.
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WG- Gist of recommendations
Disbursement of loans directly into the bank accounts of borrowers; disbursement
and servicing of loans only through bank accounts of the digital lenders.
Data collection with prior and explicit consent of borrowers with verifiable audit
trails.
All data to be stored in servers located in India.
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WG- Gist of recommendations
Key fact statement
Negative list of LSPs
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Guidelines on Digital Lending
Scope of Application: These guidelines are applicable to digital lending extended by:
[Link] Commercial Banks,
2. Primary (Urban) Co-operative Banks, State Co-operative Banks, District Central Co-
operative Banks; and
3. Non-Banking Financial Companies (including Housing Finance Companies)
4. RRBs
A. Only 1 and 2
B. Only 3 and 4
C. Only 1, 2 and 3
D. All of these
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Guidelines on Digital Lending
Customer Protection
Technology and Data Regulatory
and Conduct
Requirement Framework
requirements
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Customer Protection and Conduct
requirements
Loan Disbursal, Servicing and Repayment
Payment of Fees/Charges
Penal Interest/ Charges
Annual Percentage Rate (APR)
Key Fact Statement
Digitally signed documents
List of LSPs
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Customer Protection and Conduct
requirements
Nodal grievance redressal officer
Assessing the borrower’s creditworthiness
Cooling off/look-up period
Due diligence and other requirements with respect to LSPs
Product information
Details of recovery agent
Link to website
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Technology and Data Requirement
Collection, usage and sharing
of data with third parties
Storage of data
Comprehensive privacy policy
Technology standards
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Regulatory Framework
Reporting to Credit Information
Companies (CICs)
Loss sharing arrangement in case of
default
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Digital lending is one of the fastest-growing
fintech segments in India and grew
exponentially from 9 billion USD in 2012 to
nearly 350 billion USD in 2023. This business
was mainly covered by fintech startups
and NBFC. Key driver for digital loans is :
Digital lending:
Democratising
credit for all
India Stack: Three layered approach-
Data
Identity Payments
Governance
Digital Lending Eco-System
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Global Practices
Australia- Lender must display a warning statement at their premises, online or over the
phone. Additionally, it has to provide contact details for free debt help and alternatives
from financial counsellors
United Kingdom-The Consumer Protection Code for Licensed Moneylenders (Central
Bank of Ireland, 2009) also requires that moneylenders must ensure any warnings
required by the Code are prominent i.e., they must be in a box, in bold type and of a font
size that is larger than the normal font size used throughout the document or
advertisement.
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Use case- P C Financial Services
Bank cancelled the CoR of company which was engaged in a mobile
app-based lending business through its app called Cashbean, for
" gross violations".
On the Google Play Store itself, the app had over 1 crore downloads.
A 100 percent subsidiary of Nasdaq-listed Chinese-Norwegian tech
company Opera Ltd
Due to supervisory concerns such as gross violations of RBI directions
on outsourcing and Know Your Customer (KYC) norms.
Digital Lending – usual process
LSP/ FLDG provider
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First Loss Default Guarantee (FLDG)
Credit
Facility
FLDG is a contractual agreement wherein a third Fees, profit Loan Monitoring
sharing
party/FinTech partner/ Loan Service Provider
(LSP) agrees to compensate the B/s lender in
case of a default up to a certain pre-decided
Loan request, Credit Appraisal
percentage of the loan portfolio. Lender Borrower
FLDG LSP
Usually offered at portfolio level involving bi-
partite arrangement between lender and FinTech Recovery
Usually offered as a mix of cash collateral and
corporate guarantee by FinTech to RE
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Digital Lending – Issues observed
Lack of Regulatory Unfair and Deceptive Privacy and Data
Oversight Practices Security Risks
Usurious Interest Lack of Transparency Credit Risk
Rates and Disclosure Management
Annual Percentage Rate (APR)
APR = ((Interest + Fees / Loan amount) / No. of days in loan term)) x 365 x 100
Month Opening Principal EMI Interest @ 10% Principal repayment Closing Principal
1 10000 879 83 796 9204
2 9204 879 77 802 8402
3 8402 879 70 809 7593
4 7593 879 63 816 6777
5 6777 879 56 823 5954
6 5954 879 50 830 5124
7 5124 879 43 836 4288
8 4288 879 36 843 3445
9 3445 879 29 850 2594
10 2594 879 22 858 1737
11 1737 879 14 865 872
12 872 879 7 872 0
Total Interest 550
Processing fee 4000
Total interest and charges 4550
APR 45.50%
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Extract from Governor’s interaction during Mint BFSI
Summit & Awards 2024 on January 11, 2024
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Thank You (धन्यवाि)
