RBI Notifies Digital Lending Directions, 2025 to Regulate Online Credit Ecosystem

The Reserve Bank of India (RBI) has notified the Digital Lending Directions, 2025, aimed at strengthening oversight over digital lending activities carried out by regulated entities (REs) such as banks, non-banking financial companies (NBFCs), and cooperative banks.

Key Highlights of the Directions

1. Scope and Applicability

The Directions apply to all digital lending transactions by:

• Commercial Banks
• Cooperative Banks
• NBFCs, including Housing Finance Companies
• All India Financial Institutions

They cover lending conducted directly by REs or through Lending Service Providers (LSPs) and Digital Lending Apps (DLAs).

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2. Borrower Protection and Transparency

The RBI mandates regulated entities to:

• Provide a Key Fact Statement (KFS) with clearly stated terms, including interest rates, fees, and penal charges.
• Ensure loan disbursals and repayments are made directly between the RE and the borrower without routing through third-party accounts.
• Offer a cooling-off period, allowing borrowers to exit loans without penalty within a minimum of one day from disbursal.

Borrowers must also be notified in advance if recovery agents are deployed, and REs are responsible for any misconduct by their agents or LSPs.

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3. Data Privacy and Technology Standards

REs and LSPs must:

• Seek explicit and purpose-specific consent before collecting any personal data.
• Refrain from accessing sensitive mobile data such as contact lists or call logs.
• Store all borrower data within India, with strict protocols on retention, deletion, and third-party sharing.
• Adhere to RBI’s cybersecurity and tech compliance frameworks.

4. Digital Lending Apps (DLAs) Registry

To increase transparency, REs must:

• Report all DLAs (owned or third-party) to the RBI’s Centralised Information Management System (CIMS) by June 15, 2025.
• Ensure these apps clearly display product details, lender information, grievance redressal contacts, and links to RBI’s complaint portals.

5. Default Loss Guarantee (DLG) Norms

RBI has tightened rules around DLG arrangements, which allow third parties to compensate REs for loan defaults. Key requirements include:

• DLG must be backed by a legally enforceable contract.
• The DLG cover is capped at 5% of the disbursed portfolio.
• Recovery proceeds cannot be used to reinstate the DLG cover once invoked.

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This aims to prevent misuse of guarantees to bypass prudent lending practices.

Implementation Timeline

• Immediate Effect: All provisions except two.
• From June 15, 2025: Reporting of DLAs to RBI.
• From November 1, 2025: Rules for LSPs working with multiple lenders.

Repeal of Earlier Guidelines

With this notification, the RBI has repealed previous circulars on digital lending issued in 2020, 2022, and 2023, integrating their provisions into this single, holistic framework.

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