What changed
RBI made the Working Group on Digital Lending recommendations immediately binding via this circular. Regulated Entities must now ensure all digital loans—new and existing—comply with customer protection, data privacy, and fee transparency norms. A transition period until November 30, 2022, was given for existing digital loans to achieve full compliance.
What it means for you
Banks and NBFCs must overhaul their digital lending processes to ensure direct disbursement to borrower accounts, clear APR disclosure excluding penal charges, and a board-approved cooling-off period. Outsourcing to LSPs does not reduce RE liability; REs must ensure LSPs and DLAs follow these rules. Non-compliance could invite supervisory action.
What you must do
- Review and update all digital lending products and DLA/LSP contracts to align with the new guidelines by November 30, 2022.
- Ensure loan disbursements are directly credited to the borrower's bank account, not to any intermediary.
- Disclose APR as an all-inclusive cost (excluding penal charges) and provide a mandatory cooling-off period as per board policy.
- Strengthen oversight of LSPs and DLAs to confirm compliance with outsourcing and data privacy norms.
- Train staff and update systems to handle the transition for existing digital loans by the deadline.
Who it affects
All Commercial Banks, Primary (Urban) Co-operative Banks, State Co-operative Banks, District Central Co-operative Banks, Non-Banking Financial Companies (including Housing Finance Companies)
What is the deadline for compliance with these digital lending guidelines?
New loans and fresh customer onboarding must comply from September 2, 2022. Existing digital loans sanctioned before that date must be brought into full compliance by November 30, 2022.
Does the circular apply to co-operative banks?
Yes, it applies to Primary (Urban) Co-operative Banks, State Co-operative Banks, and District Central Co-operative Banks, along with commercial banks and NBFCs.
What is the key requirement regarding loan disbursement?
Loan disbursements must be made directly to the borrower's bank account. No pass-through accounts or third-party intermediaries are allowed.