RBI tightens norms for online lending

The Reserve Bank of India (RBI) has come to the rescue of online borrowers who are subjected to exorbitant interest rates, non-transparent methods to calculate interest, harsh recovery measures, unauthorised use of personal data and bad behaviour by the lenders. The RBI provided a set of instructions to be followed by the Banks and Non-Banking Financial Companies (NBFCs) which engage digital platforms to provide loans to their customers and a few NBFCs that are registered with the RBI as ‘digital-only’ lending entities.

The RBI Press Release stated, “It must be noted that outsourcing of any activity by banks/ NBFCs does not diminish their obligations, as the onus of compliance with regulatory instructions rests solely with them.”

The RBI stated that the lending platforms tend to portray themselves as lenders without disclosing the name of the bank/ NBFC at the backend, as a consequence of which, customers are not able to access grievance redressal avenues available under the regulatory framework. Therefore the RBI directed that the names of digital lending platforms engaged as agents shall be disclosed on the website of banks/NBFCs. It also gave the following instructions:

1. 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.
2. Immediately after sanction but before execution of the loan agreement, the sanction letter shall be issued to the borrower on the letter head of the bank/ NBFC concerned.
3. 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.
4. Effective oversight and monitoring shall be ensured over the digital lending platforms engaged by the banks/NBFCs.
5. Adequate efforts shall be made towards creation of awareness about the grievance redressal mechanism.