RBI Shapes the Future of Digital Lending, 2025

On 8-5-2025, the Reserve Bank of India issued the Reserve Bank of India (Digital Lending) Directions, 2025 to establish a transparent, fair, and borrower-centric framework for digital lending, ensuring stricter oversight of digital lending platforms. The provisions came into force on 8-5-2025 except for multi-lender arrangements which will come into force on 1-11-2025 and Digital Lending Apps/ Platforms which will come into force on 15-6-2025.

Key points:

• These directions apply to all Regulated Entities (‘REs’) involved in digital lending, including commercial banks, co-operative banks, NBFCs, housing finance companies, and All-India financial institutions.

• The objective is to promote responsible lending, safeguard borrowers, enhance financial transparency, and uphold ethical standards in the digital lending space.

• Lending Service Providers will establish contractual agreements outlining roles and responsibilities and enhanced due diligence is essential before partnerships, ensuring compliance with technical, ethical, and regulatory standards.

  REs will remain fully accountable for LSP actions and will actively monitor loan portfolios to prevent misconduct.

  In multi-lender arrangements, borrowers will receive a clear digital view of all matching loan offers, ensuring transparency and preventing deceptive lending practices.

• Borrowers will receive a Key Fact Statement (‘KFS’) detailing loan terms, charges, privacy policies, and repayment obligations. Loan disbursal and repayment must be directly between the borrower and RE.

Borrower can avail a cooling-off period to exit loans without penalties giving clear disclosures, fair credit evaluation, and grievance redressal mechanism to borrower linking to Reserve Bank of India’s (‘RBI’) Complaint Management System (‘CMS’) for dispute resolution.

• Privacy Policy:

  • REs and LSPs will collect only necessary borrower data with explicit consent and maintain audit trails for transparency.

  • DLAs cannot access personal phone resources like contacts or call logs, except for one-time KYC verification with borrower approval.

  • Borrowers can restrict data sharing, revoke consent, and request data deletion.

  • All data will be stored within India, and any externally processed data will be deleted within 24 hours.

  • REs will implement strong data protection policies, prohibit biometric data storage, and comply with RBI’s cybersecurity standards to ensure safe digital lending.

• Reporting of Digital Lending Apps to RBI:

  • REs will have to report all Digital Lending Apps (‘DLAs’) to RBI;

  • Reporting should be completed by 15-6-2025;

  • third-party DLAs will not misrepresent their inclusion as RBI approval.

• EMI programs on credit cards are excluded, but other credit card and debit card loans fall under these Directions.

• These Directions do not override other regulatory norms, meaning REs will still comply with all applicable laws.

• Older RBI circulars regarding -Guidelines on Digital Lending are repealed, but past actions under them remain valid if aligned with these Directions.

  Read repealed guidelines- Loans Sourced by Banks and NBFCs over Digital Lending Platforms: Adherence to Fair Practices Code and Outsourcing Guidelines

• 10. Together, these measures create a transparent, accountable, and borrower-friendly digital lending ecosystem. REs must ensure stricter compliance, mandatory reporting, and responsible multi-lender partnerships while RBI strengthens oversight, ensuring financial stability and market integrity.

Notes:

1. Digital lending is the process of issuing and receiving loans through Digital Lending Apps/digital platforms, eliminating the need for traditional bank branches.

2. Utilizing Lending Service Providers (‘LSPs’) such as mobile apps, websites, and fintech solutions, streamlines credit access, offering faster approvals, automated assessments, paperless transactions, and seamless digital repayments.