Thread by @artijourno

Much awaited digital lending guidelines from RBI is out. The important point is that RBI is yet to decide on FLDG.
Here are recommendations (from Working Group on digital lending) accepted for "immediate implementation" 👇@livemint #digitallending #fintech

- REs (registered entities) have to ensure that all loan servicing, repayment, etc shall be executed directly in their bank account without any pass-through account/ pool account of any third-party.

- REs to ensure that any fees payable to LSPs is paid directly by them (REs) and not by borrower.
3) All-inclusive cost of digital loans as an Annual Percentage Rate (APR) to be disclosed upfront by REs.

- REs and loan service providers shall have a suitable nodal grievance redressal officer to deal with FinTech/ digital lending related complaints/ issues raised by the
borrowers. Such grievance redressal officer shall also deal with complaints against their respective DLAs.

- REs shall publish the list of LSPs (and DLAs, if any) engaged by them along with the details of the activities for which they have been engaged, on their
website.

- REs to ensure that LSPs engaged by them do not store personal information of borrowers except for some basic minimal data (viz. name, address, contact details of the customer, etc.) that may be required to carry out their operations.

- Further, standardized code of conduct for recovery is envisaged to be framed by the proposed SRO in
consultation with RBI. Till the time SRO is set-up, guidance on fair recovery practices to be issued to
REs by RBI.

- Digital loan apps should desist from accessing mobile phone resources such as file and media, contact list, call logs, telephony functions, etc. A one-time access can be taken for camera, microphone, location necessary for on-boarding/ KYC with 'explicit consent'.

- The borrower should be provided with an option to give or deny consent for use of specific data, restrict disclosure to third parties, data retention, revoke consent already granted to collect his personal data and if required, make the app delete/ forget the data.

- REs to ensure that any lending done through DLAs is reported to CICs (credit bureaus) irrespective of its nature/ tenor.

Recommendations accepted 'in-principle' which require further examination:
- Each access/ enquiry of credit information by any RE or LSP from Credit Information Companies shall be conveyed to the borrower through email/ SMS.

- REs to ensure measures related to data privacy and security at the end of SMS gateways/ SMS service providers before onboarding them.

- The recommendation pertaining to First Loss Default Guarantee (FLDG) is 'under examination' with RBI. Meanwhile, REs shall ensure that financial products involving contractual agreement, in which a third party...

..guarantees to compensate up to a certain percentage of default in a loan portfolio of the RE, shall adhere to the extant guidelines
laid down in Master Directions of Securitisation of Standard Assets 2021.

- Regulatory framework for web-aggregator of loan products to be framed

- In order to pre-empt any unscrupulous practice by NBFCs, who have been granted Certificate of Registration with provision of digital lending but who have not been carrying out such activity for a reasonably long period, their Certificate of Registration may be reviewed.

- A Self-Regulatory Organisation (“SRO”) covering REs and DLAs/LSPs in the digital lending ecosystem to be set up..

Recommendations for consideration of the Government of India:
- Balance Sheet Lending using DLAs to be restricted to REs of RBI and to entities registered under any other law for specifically undertaking lending business.

- Government may consider framing a legislation for Banning of Unregulated Lending Activities (BULA) which would cover all entities not authorized by RBI

- To ensure that only authorised and trusted DLAs are used by consumers, an independent body styled as Digital India Trust Agency (DIGITA) should be set up.

- Setting up of a National Financial Crime Record Bureau, like National Crime Records Bureau, with a data registry similar to crime and criminal tracking network and systems, which is accessible to REs.

- Seeks RoC's help for early identification of shell finance companies and finance companies with proxy directors or opaque beneficial owners.

In my opinion, with the kind of expectations the industry had from the RBI - going by their last few back-to-back circulars - this seems to be a soft regulation :)