The Reserve Bank of India (RBI) on September 2 gave a breather to banks and fintechs by allowing them time till November 30 for implementation of the new digital lending guidelines on existing digital loans.
“In order to ensure a smooth transition, REs (registered entities) shall be given time till November 30, 2022, to put in place adequate systems and processes to ensure that ‘existing digital loans’ (sanctioned as on the date of the circular) are also in compliance with these guidelines in both letter and spirit,” the central bank said in a circular today.
In the circular, the RBI reiterated that the outsourcing arrangements between a regulated bank or a non-banking finance company (NBFC) with a lending service provider (LSP) or digital lending app (DLA) does not diminish the lenders’ obligations, and that they shall continue to follow guidelines on outsourcing of services.
Banks and NBFCs partner with fintechs for extending digital loans, and credit cards, among others.
“The REs are advised to ensure that the LSPs engaged by them and the DLAs (either of the RE or of the LSP engaged by the RE) comply with the guidelines contained in this circular,” the RBI said.
What do the guidelines say?
As Moneycontrol reported earlier, NBFCs and fintechs operating in the digital lending space are staring at a major overhaul of operations, tweaking of business models, and a rise in costs after the central bank tightened the guidelines for such lending.
Under the new digital lending norms, all loan disbursals and repayments must now be executed only between the borrowers’ bank accounts and the RE without any pass-through or pool account of the lending service provider (LSP), or any other third party.
Further, any fees or charges payable to LSPs in the credit intermediation process shall be paid directly by the RE and not by the borrower.
REs are also required to disclose all costs upfront in a digital loan product to the customer, even as they are not allowed to scrub or read borrowers’ smartphones, as per the norms.
“The regulations on direct transfer of disbursements, repayments between borrowers and lenders will impact the ‘buy now, pay later’ services and prepaid instruments being offered. Business models will have to be tweaked to conform with the new regulations,” Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer at CRISIL, said.
“Another important change is the restriction imposed on scrubbing/reading the smartphones of borrowers. This was a typical part of the underwriting regimen for digital consumer loans, and it will have to be rejigged now,” he added.
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