RBI issues draft guidelines on digital lending to give borrowers a better deal

The RBI on Friday released draft guidelines on digital lending to ensure transparency in the aggregation of loan products from multiple lenders by lending service providers (LSP) so that borrowers get prior knowledge about all credit offers that are available in the market.

LSPs are entities engaged by banks or NBFCs to carry out some functions for them such as customer acquisition, underwriting and loan recovery on digital platforms. In some cases, a regulated entity can also act as an LSP.

Banks and NBFCs should ensure that their LSPs provide a digital view of all the loan offers available to the borrower from all the willing lenders that the LSP has arrangements with, the RBI draft guidelines state.

The digital view, the RBI said, should include the name of the bank or NBFC extending the loan, the amount and tenor of loan, the annual percentage rate and other key terms and conditions in a way that enables the borrower to make a fair comparison between various offers.

The RBI said the guidelines have been issued as it has observed that many of the LSPs offer aggregation services for loan products, while they have outsourcing arrangements with several lenders and the Digital Lending App of the LSP matches the borrower to one of the lenders. In such 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.

While the LSP can adopt any mechanism to ascertain the willingness of the lenders to offer a loan, the RBI said it should follow a “consistent approach” that must be disclosed suitably on their website.

A link to the key facts statement (KFS) must also be provided in respect of each of the regulated entities, it said.

The content displayed by the LSP should be “unbiased” and should not directly or indirectly promote or push a product of a particular lender, including by use of any practices or deceptive patterns, to mislead borrowers into choosing a particular loan offer, the guidelines state.

The RBI has invited comments from stakeholders on the draft circular by May 31.