The Reserve Bank of India (RBI) has given banks and non-banking financial companies (NBFCs) until the end of November to put mechanisms in place to ensure that existing digital loans comply with the new lending guidelines issued last month. 

The new norms are applicable to both ‘existing customers availing fresh loans’ and to ‘new customers getting onboarded’. 

In a circular, the RBI said outsourcing arrangements entered by Regulated Entities (REs) with a Lending Service Provider (LSP)/ Digital Lending App (DLA) do not diminish the REs’ obligations and they shall continue to conform to the extant guidelines on outsourcing.

Last month, the RBI tightened norms for 'digital lending' to prevent charging of exorbitant interest rates by certain entities and also check unethical loan recovery practices.

It further said the instructions are applicable to the ‘existing customers availing fresh loans’ and to ‘new customers getting onboarded’.

"However, in order to ensure a smooth transition, REs shall be given time till November 30, 2022, to put in place adequate systems and processes to ensure that 'existing digital loans' are also in compliance with these guidelines in both letter and spirit," the Reserve Bank said.

Under the new norms, all loan disbursals and repayments are required to be executed only between the bank accounts of borrower and the regulated entities (like banks and NBFCs) without any pass-through/ pool account of the Lending Service Providers (LSPs).

Also, "any fees, charges, etc, payable to LSPs in the credit intermediation process shall be paid directly by RE and not by the borrower", the RBI had said on August 10.

Issuing a detailed set of guidelines for digital lending, the RBI had mentioned about the concerns primarily related to unbridled engagement of third parties, mis-selling, breach of data privacy, unfair business conduct, charging of exorbitant interest rates, and unethical recovery practices.

The RBI had constituted a Working Group on 'digital lending including lending through online platforms and mobile applications' (WGDL) in January 2021.