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RBI Starts Implementing Regulatory Framework Through Digital Lending

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The Reserve Bank of India said it is working assiduously to form a regulatory framework for guiding credit delivery via digital lending. This is coming months after the Working Group tasked with bringing sanity to digital lending submitted its reports to the Reserve Bank of India. The RBI believes the move will bring about an orderly growth of credit delivery through digital lending.

The Working Group on Digital Lending was set sometime last year, precisely January 13, 2021, by the Reserve Bank of India. The panel’s objective was to develop a regulatory framework for digital lending. The RBI has always been of the opinion that lending business should only be executed by entities licensed by the central bank. 

According to the RBI, all loan approval, disbursement, and subsequent repayments must be executed via the bank accounts of borrowers and the licensed entity with the seal of approval to do so. The central bank also said that banks and non-banks should bear the burden of fees payable to the loan service lender instead of the borrower. 

The need for urgent sanitization of the digital lending space

As part of the RBI’s digital lending framework, lenders must explicitly state all of the associated costs of digital loans to borrowers. More so, lenders are mandated by the RBI to provide a reasonable window for borrowers to exit digital loans. With this in place, borrowers will only have to pay the initial money received along with other costs without paying any penalty. 

Additionally, the RBI has made it mandatory for entities regulated by the Reserve Bank of India to ensure all loan providers under them must have access to a redressal officer to handle digital lending-related complaints. Also, banks and non-banks must ensure that all digital lending apps on their platform provide necessary information like product features, cost involved, and loan limits. 

Even though some recommendations of the Working Group have been approved for immediate implementation, others are still under consideration and will be implemented when everything is in place.

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