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Loans through apps; Reserve Bank has released new norms

New Delhi: The Reserve Bank of India (RBI) has issued new norms and rules regarding digital lending transactions through apps and others.
RBI has decided to issue norms to ensure the advancement of digital services by considering the demands from various sectors. “These norms are based on the principle that only institutions regulated by the Reserve Bank or institutions authorized to grant loans under any other law can carry on lending business,” the RBI said in a notification.

Digital lenders are divided into three groups. i) Institutions regulated by RBI and permitted to carry on lending business, ii) Institutions not regulated by RBI but authorized to lend under other statutory/regulatory provisions, iii) Institutions lending outside the purview of any statutory/regulatory provisions.

The norms have been set based on input from a working group set up by the RBI to assess institutions involved in lending through online platforms and mobile applications. According to the new rules, all transactions and repayments related to loans should take place directly between the borrower’s bank account and the lending service provider. Fees and charges payable to the servicer as part of the loan-related process are to be paid by the regulatory body and not by the borrower, the notification said.

The order also clarified that the loan limit should not be increased without the consent of the borrowers. As per the norms, a standardized key fact statement (KFS) must be provided to the borrower before securing the loan agreement. The Annual Percentage Rate (APR) of all charges incurred in a year in respect of the digital loan must be recorded in the KFS.

The regulatory body should ensure that there is a nodal grievance redressal officer to address complaints related to digital lending. Details related to this officer should be provided on the website. Complaints should be resolved within 30 days. Only necessary information should be collected from the borrower. The RBI norms state that prior approval is also required for this. The final decision regarding the granting of permission for the provision of the information rests with the Borrower.

Samir Agarwal, CEO, and founder of EV financing company Revfin said he welcomes the recommendations of the RBI’s working group on digital loans. He added that the recommendations would bring transparency and credibility to digital lending while protecting consumer interests.

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