Reserve Bank of India unveiled preliminary guidelines regarding digital lending, with the aim of preserving transparency in the aggregation of loan products by lending service providers. The guidelines are aimed at assisting borrowers in making informed decisions in a market inundated with a range of credit offers.
LSPs — companies engaging in activities on behalf of banks or NBFCs in the manner of customer acquisition, underwriting, and loan recovery in the digital environment — form the target segment of the guidelines. In the meanwhile, it is noted that in certain cases, a regulated entity may also operate as an LSP.
The guidelines clarify that banks and NBFCs need to ensure that their LSPs digitally publish all loan offers from willing lenders with whom they have tie-ups. Digital publishing should include the name of the lender, amount of loan, tenure, annual percentage rate, as well as other relevant terms and conditions, so that borrowers can make comparisons on an informed basis.
The RBI observed that the guidelines were needed because it was found that several LSPs offer aggregation services for loan products, often with outsourcing arrangements with several lenders. In such cases, however, the borrower might not be aware upfront of the potential lender matched by the LSP's Digital Lending App.
LSPs can adopt a number of methods for assessing lenders' willingness to provide loans, but the RBI insisted that there should be a "consistent approach" and that the approach should be declared transparently on their platforms. For each regulated entity, there must be a link to the key facts statement.
It has been noted that the content presented by LSPs should be neutral, and the display should never promote or favor any particular lender or product through direct or indirect means. The guidelines strictly prohibit any misleading practices leading to or influencing the borrower's decision.
Since only this, the RBI invited comments from stakeholders till May 31 on draft circular; a token gesture, to say the least, aimed at gathering opinions before finalizing the guidelines.
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