The central bank had last month tightened digital lending norms to prevent some entities from charging excessive interest on loans and using unfair means to recover outstanding loans
The Reserve Bank of India (RBI) has asked banks and NBFCs (Non-Banking Financial Companies) to bring lending through digital medium under the amended rules. For this, they have been given time till November 30 to make arrangements. The objective of this initiative is to protect the interest of the customers.
The central bank had last month tightened digital lending norms to prevent some entities from charging excessive interest on loans and using unfair means to recover outstanding loans. The RBI said in a circular that outsourcing arrangements of regulated entities (banks and NBFCs) with Credit Service Providers (LSPs)/Digital Loan Apps (DLAs) do not reduce their obligations.
The regulated entities shall ensure that the outsourcing institutions adhere to the extant guidelines. It has been said in the circular that the instructions will be applicable to existing customers taking new loans and new customers.
RBI said, for smooth functioning of the system, regulated entities will be given time till November 30, 2022 to put in place adequate arrangements to ensure that the existing digital lending is also fully compliant with these guidelines.
Under the new arrangement, all loan disbursement and payments would need to be made only between the bank accounts of the borrower and the regulated entities. There is no need to use the ‘pool’ account of the loan service providers. In the circular issued on August 10, RBI said that also, if any fee etc. is to be paid in the lending process, it will be given by the regulated entities and not the borrower.