Mint Explainer: RBI’s digital lending rules and impact on lenders and borrowers

Why were the new digital lending rules issued?

The central bank said that while it encourages innovation in financial systems, products, and credit delivery methods, certain concerns had emerged around the methods of designing, delivering, and servicing digital credit products, which, in turn, could affect borrowers’ confidence in the digital lending ecosystem.

These concerns primarily pertain to unbridled engagement of third parties, mis-selling, breach of data privacy, unfair business conduct, charging of exorbitant interest rates, and unethical recovery practices.

“To address these concerns, pursuant to the recommendations made by the ‘Working Group on Digital Lending’, RBI has, from time to time, issued guidelines to its regulated entities on digital lending. These Directions consolidate the earlier instructions,” the banking regulator said in a statement.

What is new in the guidelines?

The guidelines include RBI’s final instructions on ‘Transparency in Aggregation of Loan Products from Multiple Lenders’. RBI issued a draft circular on 26 April 2024 and the final rules on 8 May 2025 based on comments and feedback from the public.

RBI also issued guidelines regarding operationalisation of the Public Directory of Digital Lending Apps (DLAs). The creation of such a depository of registered digital lenders was announced as part of the Statement on Developmental and Regulatory Policies, which had been issued alongside the monetary policy statement on 8 August 2024.

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“These new guidelines hold regulated entities fully accountable for their lending service providers, mandate stringent cybersecurity measures and the localization of data within India, and empower borrowers with greater control over their personal information, including the right to revoke consent and request data deletion,” said Utkarsh Bhatnagar, partner at law firm Cyril Amarchand Mangaldas.

Key provisions introduce a cooling-off period for borrowers to exit loan agreements and an emphasis on direct control over loan disbursals and repayments, signalling a significant step towards a more transparent and accountable digital lending landscape, he added.

What are the instructions for LSPs that have multiple lending agreements?

For LSPs having agreements with multiple regulated entities for digital lending, RBI has put the onus on regulated entity partners to ensure compliance with its guidelines. Each regulated partner will need to ensure that LSPs provide a digital view of all loan offers matching a borrower’s request and requirements, on their lending platform. Names of unmatched lenders also need to be disclosed in the digital view.

Further, while LSPs may adopt any mechanism to match the request of borrowers with multiple loan offers, they should follow a consistent approach for “similarly placed borrowers and products”, RBI said, adding that the mechanism adopted by an LSP and any subsequent changes to this mechanism will need to be “properly documented”.

“They (LSPs) have a lot of work to do to ensure full compliance. The requirements that LSPs present information from multiple LSPs in a comparable and unbiased manner addresses a critical need, i.e., more transparency and clearer choices for borrowers,” said Vijay Mani, partner, banking and capital markets leader, Deloitte India.

These rules will come into effect from 1 November.

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How will the ‘digital view’ help borrowers?

The ‘digital view’ of loan offers from matching lenders is expected to increase transparency for borrowers while also providing a level playing field to all lenders, regardless of their partnerships and size.

RBI explained that the ‘digital view’ of a loan application must include the names of the entities extending the loan offers, the amount and tenor of loan, annual percentage rate, monthly repayment obligation, and penal charges (if applicable). This will need to be displayed in a way that enables a borrower to make a fair comparison between various offers. LSPs will also need to provide a link to the key fact statement with respect to each loan offer.

cThe content displayed by the LSP shall be unbiased, objective and shall not directly/ indirectly promote or push a product of a particular RE, including the use of dark patterns/deceptive patterns designed to mislead borrowers into choosing a particular loan offer,” RBI said. 

It added that the ranking of loan offers based on a publicly pre-disclosed metric will not be construed as promoting a particular product.

Cyril Amarchand Mangaldas’ Bhatnagar said such transparency is essential for promoting ethical lending practices and enhancing confidence in the digital lending ecosystem.

“The new Digital Lending Directions not only ensure that borrowers are fully aware of the terms and conditions of loans offered by different lenders, fostering accountability and reducing the risk of misrepresentation or bias in loan offerings,” Bhatnagar said, “but also support the principles of the draft co-lending regulations, which aim to streamline collaboration between lenders while safeguarding borrower interests.”

What is a public depository of digital lending applications?

The rules for creating a public registry require regulated entities to furnish the details of all the digital lending applications that they have partnered with, through RBI’s Centralised Information Management System (CIMS) platform.

The platform will be available for reporting by 13 May. Regulated entities have to upload the initial data by 15 June, when the new rules come into effect. The list of digital lending apps will be available on RBI’s website by 1 July. The list will get updated automatically as and when REs update the details.

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Why is there a need for a public database of digital lending platforms?

Regulated entities or partners will need to report all digital lending applications deployed or joined by them, whether their own or those of other LSPs, either exclusively or as a platform participant. This data will need to be updated as and when additional lending platforms are deployed or in case an engagement with an application ends.

The automated publication of data on lending apps will empower borrowers to verify the legitimacy of lending platforms, and help curb fraud and unethical practices, experts said, adding that it will also aid in bolstering borrower protection, building trust in digital lending, and ensuring fair and responsible practices by all stakeholders.

RBI said the data is being made available so customers can verify the claim of a digital lending application’s association with a regulated entity.

It also put the customer care onus on regulated entities, saying all issues and grievances of customers with respect to digital lending applications will need to be addressed and dealt with by a regulated entity directly.

“The public database is a measure that has been in discussion for a while and once implemented, will be an important step in curbing unauthorised or fraudulent applications,” said Shilpa Mankar Ahluwalia, partner, head-fintech, Shardul Amarchand Mangaldas & Co., a law firm. “Transparency and disclosures around multiple loan offers will enable borrowers to evaluate all options and access credit products that best suit their needs.”

What are the requirements for REs to maintain the depository?

A regulated entity’s chief compliance officer or a board-designated official will have to certify that the data submitted by the RE is correct, that the digital platforms are compliant with all regulatory instructions, and that details of the digital lending partnerships are “suitably disclosed” on the regulated entity’s website.

This person will also need to certify that the digital lending platform has a link to the RE’s website, where the customer can access further information about the loan products, lender, the lending service provider, particulars of customer care, link to the customer awareness ‘Sachet Portal’, and privacy policies, among others.

Further, LSPs have to appoint a suitable nodal grievance redressal officer to deal with digital lending-related complaints and issues, and ensure that the data collection and storage by LSPs is in compliance with regulatory norms.

“REs shall ensure that the inclusion of any third party DLAs deployed by them as part of above reporting, shall not be construed by the DLAs or any associated entity as conferring any form of registration, authorization, or endorsement by RBI,” the central bank said in its circular.

Regulated entities will also need to ensure that such inclusion is not misrepresented in any marketing, promotional, or other materials issued by or on behalf of the digital platforms.