Technological advancements have considerably aided digital lending. Individuals can get cash infusions from digital lenders. The demand for online loans has skyrocketed in recent years. The Reserve Bank of India (RBI) has issued Digital Lending Guidelines for all commercial and cooperative banks, as well as NBFCs.
Regulated entities (REs) are responsible for ensuring
that Lending Service Providers ("LSPs"), Digital Lending Apps
("DLAs"), and LSP DLAs comply with the Guidelines. The REs include
all commercial and cooperative banks, as well as non-banking financial
institutions. On behalf of the RE, the LSP handles lender tasks such as
customer acquisition, monitoring, and recovery. DLAs are websites or mobile
applications that provide loans to their customers; this covers both RE
applications and the LSP for the credit facility.
1. Loan Disbursal Directly to borrowers Account
To promote transparency and avoid operational
ambiguity, REs must ensure that loan disbursements are sent straight to the
borrower's bank account. This means that, with the exception of co-lending, no
loan-related capital can be transmitted through third-party accounts. This
eliminates the presence of the LSP's nodal pass-through or pool account.
Exceptions are given in circumstances where the
disbursement is made as a result of (a) a co-lending transaction, which is an
agreement involving the joint contribution of a credit facility as well as risk
and reward sharing; a statutory or regulatory mandate; or loan disbursals for
specific end-use. The exception for specific end-use facilitates Buy Now Pay
Later ("BNPL") models by allowing REs/LSPs/DLAs to disburse loan
funds directly to the merchant.
2. Key Fact Statement
Before signing the loan agreement, the customer must
be supplied with a Key Fact Statement (KFS), a standardised document outlining
all of the key aspects of the loan. The KFS must have information such as the
Annual Percentage Rate ("APR"), which is the Effective Annualized
Rate charged to the borrower; the recovery process; the grievance redressal
officer's contact information; and the cooling-off period.
3. Fees and charges
Lenders must provide borrowers with standardised
information regarding all fees, charges, and the annual percentage rate (APR).
4. Details regarding recovery
Loan features, limits, costs, and other information
must be prominently presented on the Financial Institution's digital lending
app and by its fintech partners. All of the partners with whom the Financial
Institution collaborates for its digital lending activities, as well as the
contact information for the loan recovery agent, must be presented on the user
interface.
5. Cooling-off Period
REs must give a cooling period, which is a window of
opportunity for the borrower to return the digital loan and the commensurate
APR without penalty. The cooling-off period for digital loans with tenures of
seven days or more must be at least three days, and it must not be less than
one day for digital loans with tenures of less than seven days. Even after this
timeframe, the option of pre-payment should be available.
6. Digitally Signed Disclosures to borrowers
All documents signed with a digital signature, such as
loan product summaries, KFS, sanction letters, privacy policies, and so on,
must be sent to the borrower through SMS/email. Furthermore, REs must ensure
that a list of their DLAs, LSPs, and LSP DLAs is published on their website.
7. Rules for Data Processing
The majority of the digital
lending report is concerned with digital lending data protocols. The RBI
establishes data collection, storage, and processing requirements for financial
institutions and their lending partners to follow.
Any consumer data gathered by
Financial Institutions(FIs) or their lending partners must be need-driven. For
all data acquired, explicit client consent must be secured, and an audit trail
must be kept for transparency. At each stage, the purpose of gaining the
borrower's consent must be communicated. Borrowers must also be given the
opportunity to provide or revoke consent for specific data usage, limit
third-party disclosure, keep data, and delete all data from the app.
Financial institutions must
ensure that they only store the minimum amount of customer data (name, address,
contact information, etc.) essential for operations. In this sense, a clear
privacy policy must be given to the customer. This policy must address security
breach protocols, data deletion protocols, data storage periods, data usage
limits, and other topics. All biometric data must be stored by the financial
institution and not by their lending partners. Furthermore, all data must be
housed on servers within India's boundaries.
8. Grievance Redressal Mechanism
The RBI has mandated the appointment of a nodal
grievance redressal officer to handle complaints and concerns relating to
digital lending. The officer's information will be posted on the websites of
the REs, LSPs, and DLAs, as well as in the KFS. If a grievance redressal
officer complaint is not resolved within 30 days (thirty), the complaint can be
registered with the RBI's Integrated Ombudsman Scheme. Furthermore, the ability
to lodge complaints must be available on the websites of REs, LSPs, and DLAs.
9. Due diligence requirements
Before entering into a relationship with an LSP for
digital lending, REs must do comprehensive due diligence, taking into
account its technical capabilities, data privacy policies, and storage systems,
fairness in dealing with borrowers, and ability to comply with regulations and
statutes.
10. Reporting to CIC
Regulated Entities must
ensure that any lending done through digital lending apps is disclosed to
Credit Information Companies (CICs). Lending under the Buy Now Pay Later (BNPL)
option must also be disclosed to CICs.
The issue in Relation to FLDG Arrangements
A First Loss Default Guarantee (FLDG) is a mechanism
through which a third party guarantees to compensate up to a certain percentage
of default in a loan portfolio of a regulated entity.
RBI has through the guidelines advised adherence to
the Master Direction – Reserve Bank of India (Securitisation of Standard Assets)
Directions, 2021 dated September 24, 2021.The Master Direction
prohibits synthetic securitisation. If the RBI makes the advisory mandatory,
this will have the effect of not permitting REs to engage in synthetic
securitisation like FLDG and transfer the risk to a pool of exposures, in part
or in whole.
FinTechs are asking for a detailed framework to allow
FLDG arrangements to continue with banks as well as a set of guidelines to
better help non-regulated entities understand their scope of operations.
Conclusion
The RBI's measures will help to protect customers
while also ensuring that genuine mobile apps remain on the market. Once the
problems with these guidelines are rectified, the digital lending space is
expected to expand at an exponential rate. While the new requirements have
increased the cost of compliance for fintech companies, they have been well
received. The parties concerned recognize the potential of fintech in the
country's last-mile, effective credit delivery, as well as the importance of
maintaining a compliant operational environment to usher in the sector's
healthy and sustainable growth.
Important Links
RBI Digital Lending Guidelines 2022
Thank you for providing such an informative and well-structured blog post about RBI. The information you shared was well-documented, and I appreciated the additional resources and references you included for further reading. Dolby atmos soundbar
ReplyDeleteBose Bluetooth Speaker
Bose Computer Speakers
Thanks for sharing this article about new RBI guidelines . i appreciate your efforts.
ReplyDelete