Bring Existing Digital Loans Under Modified Norms By 30 November: RBI To Banks, NBFCs

The Reserve Bank has given time till November 30 to banks and NBFCs to put in place a mechanism to ensure that existing digital loans are in compliance with the modified norms aimed at protecting the interest of customers.

Last month, the central bank tightened norms for 'digital lending' to prevent charging of exorbitant interest rates by certain entities and also check unethical loan recovery practices.

In a circular, the RBI said outsourcing arrangements entered by Regulated Entities (REs) with a Lending Service Provider (LSP)/ Digital Lending App (DLA) do not diminish the REs’ obligations and they shall continue to conform to the extant guidelines on outsourcing.

It further said the instructions are applicable to the ‘existing customers availing fresh loans’ and to ‘new customers getting onboarded’.

"However, in order to ensure a smooth transition, REs shall be given time till November 30, 2022, to put in place adequate systems and processes to ensure that 'existing digital loans' are also in
compliance with these guidelines in both letter and spirit," the Reserve Bank said.

Also, "any fees, charges, etc, payable to LSPs in the credit intermediation process shall be paid directly by RE and not by the borrower", the Reserve Bank had said on August 10.

Issuing a detailed set of guidelines for digital lending, the RBI had mentioned the concerns 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.

The RBI constituted a Working Group on 'digital lending including lending through online platforms and mobile applications (WGDL) in January 2021.

(This story has been published from a wire agency feed without any modifications to the text. Only the headline has been changed.)