RBI's Digital Lending Reset: What Changes In Fintech Lending?

Under the new Digital Lending Directions, all digital lenders must now register their apps on the RBI's Centralised Information Management System (CIMS) portal by June 15. By July 1, the RBI will release a public list of approved digital lending apps. This move will help borrowers avoid fake or illegal apps and know which lenders are safe to deal with.

Says Puja Singh, CEO, Manipal Fintech, "By setting out explicit expectations on how lending platforms engage with regulated participants, exchange information, and protect borrower interests, the framework addresses long-standing operational risks and sets a strong foundation for sustainable growth". 

The second significant change is that any online loan issued must be from a regulated organisation like a bank or a registered NBFC. Fintech platforms cannot lend money directly and independently. They can only be service providers for regulated lenders. This step makes sure that every loan is RBI-compliant and supervised.

Banks will now provide digitally signed loan contracts and a Key Fact Statement before sanctioning the loan. The statement will clearly mention the rate of interest, repayment term, default charges and other expenses. This will provide customers with real borrowing cost information and avoid a shock later.

The RBI also clarified that it is not acceptable for lenders to increase the credit limit of a borrower without seeking explicit permission. Earlier, some of the apps used to increase limits by default, urging individuals to avail themselves of more than they can repay. From now on, any change in loan amount or loan terms must be approved by the borrower himself.

Pramod Kathuria, Founder and CEO, Easiloan, says, "The guidelines also reiterate the importance of established due diligence and ongoing monitoring of Lending Service Providers (LSPs) by Regulated Entities (REs) to mitigate risks for the delivery of credit using online mechanisms. As fintech is emerging, the expectations are that this will provide for better and more responsible practices to contribute to a safe and transparent digital credit ecosystem in India and beyond". 

Fintech companies will also be required to use more care when dealing with customer information. According to the guidelines, they have to obtain express consent from the lenders prior to soliciting and recording any sensitive data. Proper mechanisms for redressing grievances should also be introduced in order to efficiently and appropriately tackle customers' issues.

These reforms will hold digital lenders accountable. Startups may find it difficult for a while, but eventually, these regulations will build more trust among users. Most fintechs are currently closely collaborating with banks and NBFCs to stay compliant and continue offering credit to users in need.

The experts opine that while these regulations will hinder some of the players, they will clean up the online lending industry. The intention is not to stop innovation but provide a guarantee that lending is conducted in a secure, fair, and legal way. 

Ratul Paul, chief data officer at Ecofy, reflects the same note. He says, "The Reserve Bank of India guidelines for digital lending were a long-overdue inflection point for India's fintech ecosystem...It is not a regulatory hurdle, but rather an opportunity to rebuild trust, transparency, and sustainable long-term lending in digital credit". 

He also states, "The partnership among regulated institutions, fintech platforms, and regulators will be instrumental in the development of digital lending as a transparent and inclusive component of India's credit ecosystem. Fintech lenders who react quickly to this new compliance-driven vision will not only establish their reputation but also emerge as central institutions in the pursuit of credit inclusion in the country".

As long as there are more checks being imposed, the future of Indian fintech lending will be safer and friendlier to consumers. RBI restart might be all the market needs to grow sustainably.