The Reserve Bank of India (RBI) has requested public feedback on the draft circular regarding digital lending: transparency in aggregation of loan products from multiple lenders' until 31 May 2024.
The proposed guidelines require lending service providers (LSP) to digitally share information about all available loan offers from willing lenders with whom they have lending arrangements.
The RBI draft mentioned, “The LSP shall provide a digital view of all the loan offers available to the borrower, as per his or her requirements, from all the willing lenders with whom the LSP has arrangements.”
The RBI stated that its guidelines on digital Lending focus on ‘customer centricity’ and ensure complete transparency to the borrower in the credit intermediation process. RBI cites that it has observed that many of the LSPs offer aggregation services for loan products.
While offering these loan products either LSP or any regulated entity (RE) acting as an LSP, has outsourcing arrangements with several lenders and the digital lending app or platform. LSP and RE match the borrower to one of the lenders.
“In cases, particularly where an LSP has arrangements with multiple lenders, the identity of the potential lender to the borrower may not be known upfront to the borrower,” the central regulator emphasised.
The proposed draft suggests that the digital loan offer must include the name(s) of the lending institution(s) providing the loan, the loan amount and duration, the annual percentage rate (APR), and other important terms.
This information will help borrowers to compare different loan offers effectively. The regulator also requires that a link to the key facts statement (KFS) be provided for each lending institution.
“A ‘digital view’ will provide a comprehensive view on a host of details about potential lenders that will empower borrowers with informed decision making. With the increasing significance and growth momentum of LSPs in the digital lending ecosystem, these guidelines cultivate a healthy environment for both REs and borrowers,” said Prashant Muddu, Chief executive officer and Managing Director, Jocata.
This information will help borrowers to compare different loan offers effectively. The regulator also requires that a link to the key facts statement (KFS) be provided for each lending institution.
Additionally, the RBI mandated that loan service providers (LSPs) should present unbiased content and should not directly or indirectly promote the products of specific lending institutions.
Earlier regarding the draft digital lending guidelines, RBI Governor Shaktikanta Das said, “When we issued digital lending guidelines, people asked if we would stifle growth in the fintech sector. Data shows unambiguously that the confidence of private investors in the fintech sector has now gone up. And, as a result, I have been told by a number of serious players in the fintech space that regulatory measures have given greater confidence to investors.”
The central bank’s governor mentioned that the regulatory guidelines for digital lending strike a well-considered balance between customer protection and business conduct on one hand, and supporting innovation on the other.
Ankit Ratan, Co-founder and Chief Executive Officer, Signzy said, "This isn't a one-way street. REs and the RBI have to work together to empower borrowers. The focus on upfront information about lenders, including APR and key terms, through a clear digital view, ensures informed decision-making.”
Ratan further added that this collaborative approach with clear expectations, like unbiased presentation and avoiding 'dark patterns,' paves the way for a digital lending ecosystem built on trust and responsible practices.
“RBI's continuous focus on a customer-centric approach will enhance the digital lending ecosystem while REs adhere to compliance requirements," Ratan pointed out.
