RBI Circular On Digital Lending
RBI CIRCULAR ON ADHERENCE TO FAIR PRACTICE CODES AND OUTSOURCING GUIDELINES FOR DIGITAL LENDING
The Reserve Bank of India (“RBI”) on 25th June 2020 issued a circular directed to all Banks and NBFCs regarding Digital Lending Platforms, wherein RBI has emphasized adherence to Fair Practices Code and Outsourcing Guidelines.
The circular points out the existence of “digital-only” lending institutions registered with the RBI along with the ones having a “brick and mortar” presence. The borrowers securing loans from such “digital-only” platforms have been dealing with grievance redressal issues due to undisclosed names of such Banks/NBFCs on the lending platforms, non-transparent methods of interest calculation, exorbitant interest rates, harsh recovery methods, unauthorized use of personal data, etc., by such platforms.
In order to curb such uninvited practices by the lending institutions, RBI has issued the circular re-emphasizing the importance of adherence to Fair Practices Code and Outsourcing Guidelines issued to Banks and NBFCs, whether they lend directly through their own digital lending platform or through an outsourced lending platform, as applicable. The Banks and NBFCs have also been advised to meticulously follow regulatory instructions on the outsourcing of financial services and IT services.
Attention has also been drawn to the fact that outsourcing of any activity does not relieve the Banks/NBFCs of their compliance obligations i.e. the onus of compliance with regulatory instructions still rests in them.
Through the circular, the Banks and NBFCs have also been advised to follow a set of specific instructions while engaging digital lending platforms as their agents to source borrowers and/or to recover dues, which are as follow:
- Names of digital lending platforms engaged as agents shall be disclosed on the website of Banks/NBFCs.
- Digital lending platforms engaged as agents shall be directed to disclose upfront to the customer, the name of the Bank/NBFC on whose behalf they are interacting with him.
- Immediately after sanction but before the execution of the loan agreement, the sanction letter shall be issued to the borrower on the letterhead of the Bank/NBFC concerned.
- A copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement shall be furnished to all borrowers at the time of sanction/disbursement of loans.
- Effective oversight and monitoring shall be ensured over the digital lending platforms engaged by the Banks/NBFCs.
- Adequate efforts shall be made towards the creation of awareness about the grievance redressal mechanism.
It has also been specified that any violations to the above, by the Banks and NBFCs, shall be viewed seriously by the RBI.
Points to Note –
- Applicability – The circular shall be applicable to all the Scheduled Commercial Banks and all the Non-Banking Finance Companies (including Housing Finance Companies).
- Exceptions – The circular shall not be applicable to Regional Rural Banks.