Reserve Bank of India Issues Advisory on Digital Lending Practices

The Reserve Bank of India (RBI) has issued a fresh advisory to banks and Non-Banking Financial Companies (NBFCs) to ensure stricter compliance in digital lending operations. The move comes amid growing concerns over predatory lending practices, lack of transparency, and misuse of customer data by certain digital platforms.

The advisory emphasises full transparency in loan terms, including clear disclosure of interest rates, processing charges, penalties, and repayment schedules. Regulated entities have been directed to ensure that all loan agreements are directly executed between the borrower and the regulated lender, eliminating ambiguity regarding third-party intermediaries.

A key highlight of the advisory is the strict prohibition on unauthorised third-party lending apps. RBI has instructed financial institutions to ensure that only approved and compliant digital platforms are used for loan disbursal and recovery. Additionally, lenders must establish a robust grievance redressal mechanism to address borrower complaints promptly and effectively.

The directive aims to protect borrowers from harassment, hidden charges, and unethical recovery practices. It also strengthens the broader financial consumer protection framework and promotes trust in India’s rapidly expanding digital lending ecosystem.

By reinforcing regulatory oversight and transparency standards, the RBI seeks to balance financial innovation with consumer safeguards, ensuring sustainable growth in the digital credit sector while maintaining financial stability.