Planning to avail loan digitally? Things you shouldn’t miss out

Introduction

The RBI vide circular no. RBI/2022-23/111 DOR.CRE.REC.66/21.07.001/2022-23, Dated 02.09.2022 has issued guidelines on digital lending. These guidelines aim to protect the data of borrowers using digital lending apps from being misused. The major guidelines include a) Borrowers’ personal data can’t be stored by Lending Service Providers (LSPs)/Digital lending Apps (DLAs)except for some basic minimal information, b) Lending Service Providers (LSPs) can’t charge fees/charges from a borrower, c) Disbursement of loan to be made by borrower directly in Regulated entities (REs) bank account etc.

The guidelines issued are applicable to existing customers availing fresh loans and to new customers getting onboarded from the date of this circular. However, in order to ensure a smooth transition, regulated entities shall be given time till November 30, 2022, to put in place adequate systems.

The key highlights of the guidelines on Digital Lending are discussed in detail below:

1. Applicability of Digital Lending Guidelines

The guidelines are applicable to digital lending extended by –

(a) All Commercial Banks

(b) Primary (Urban) Co-operative Banks, State Co-operative Banks, District Central Co-operative banks and

(c) Non-Banking Financial Companies (including Housing Finance Companies)

All these together are known as Regulated entities (REs).

2. Time Period given to regulated entities to ensure ‘existing digital loans’ are in compliance with guidelines

The instructions contained in the guidelines are applicable to existing customers availing fresh loans and to new customers getting onboarded. However, in order to ensure a smooth transition, regulated entities shall be given time till November 30, 2022, to put in place adequate systems and processes to ensure that ‘existing digital loans’ sanctioned as on the date of the guidelines are also in compliance with the guidelines in both letter and spirit.

3. Borrowers’ personal data can’t be stored by LSPs/DLAs except for some basic minimal information

The regulated entities must ensure that Lending Service Providers (LSPs)/Digital lending Apps (DLAs) engaged by them do not store any personal information of borrowers except some basic minimal data like name, address, contact details of the customer etc. which is required to carry out the operations. Further, responsibility regarding data privacy and security of the customer’s personal information will remain with the registered entities.

Comments:

The bar on banks/NBFCs on storing personal data except for minimal data of borrower would ensure data privacy and would prevent any misuse or leakage of vital information such as PAN, Aadhar, Salary details, Employer Name, details of running banks loans, Salary account, bank statements etc.

4. Borrowers must be informed about the storage of customer data

Regulated entities must ensure that clear policy guidelines regarding the storage of customer data are put in place. The borrowers must be informed about the storage of customer data including the type of data that can be stored, the length of time for which data can be stored, restrictions on the use of data, data destruction protocol, standards for handling security breach etc. Further, the information must be provided on their website and the apps at all times.

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