Digital Lending Directions, 2025

Context:

Reserve Bank of India (RBI) has issued the Digital Lending Directions, 2025, aiming to consolidate and streamline the growing digital lending ecosystem in India. These directions are designed to enhance borrower protection, ensure data transparency, and encourage responsible digital lending by Regulated Entities (REs).

Objective of the Directions

Promote responsible digital lending practices.
Strengthen customer protection mechanisms.
Ensure data privacy and transparency in loan disbursements and collections.
Enable greater accountability of both Regulated Entities and Lending Service Providers.

Key Guidelines for Digital Lending

1. Digital Lending Agreements

All digital lending operations involving Lending Service Providers (LSPs) must be formalized through a contractual agreement with the Regulated Entity.
The contract must clearly define roles, rights, and obligations of both parties.

2. Enhanced Due Diligence on LSPs

REs must thoroughly assess the LSP's:

Technical capability
Data privacy practices
Fairness in borrower conduct
Past performance and compliance record

3. Borrower Data Collection

Before loan disbursement, REs must collect and record:

Age
Occupation
Income details

This information must be maintained for audit purposes.

Borrower Protection Measures

1. Cooling-Off Period for Loan Exit

Borrowers must be provided with an explicit option to exit the loan during a cooling-off period.
This period, set by the RE’s Board policy, must be at least one day.
No penalties are allowed during this exit window.

2. Consent-Based Credit Limit Increases

REs are prohibited from automatically increasing a borrower’s credit limit.
An explicit request from the borrower is mandatory and must be documented.

3. Strict Guidelines on Loan Disbursement

Loan funds must be disbursed directly into the borrower's bank account.
Exceptions are limited to:

Statutory or regulatory mandates
Co-lending arrangements between REs
Loans for specific end-use, disbursed directly to the end-beneficiary

Disbursement to third-party accounts, including those of LSPs, is not permitted.

Data Protection

1. Need-Based Data Collection

REs and LSPs are allowed to collect only essential borrower data.
Explicit consent from the borrower is mandatory.

2. Data Storage Limitations

LSPs may store only basic personal data (e.g., name, address, contact details).
Full responsibility for data security lies with the RE.

3. Grievance Redressal Mechanism

Both REs and LSPs must designate nodal grievance redressal officers.
Contact details must be displayed on:

Websites of the RE, LSP, and DLA
The Key Fact Statement (KFS) issued to the borrower

Regulatory Reporting

1. Public Directory of Digital Lending Apps (DLAs)

RBI will maintain a public directory of DLAs.
This will allow borrowers to verify the legitimacy of digital lending apps claiming to be associated with regulated financial institutions.

2. Reporting to Credit Information Companies (CICs)

REs must report all loans disbursed via DLAs (including those through LSPs) to Credit Information Companies, regardless of loan nature or tenure.

Conclusion:

The Digital Lending Directions, 2025, signal a comprehensive regulatory overhaul that recognizes both the opportunities and risks of India's growing digital credit ecosystem.