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The Reserve Bank of India (RBI) has tightened norms for digital lending to prevent charging of exorbitant interest rates by certain entities and also check unethical loan recovery practices. Under the new norms, all loan disbursals and repayments are required to be executed only between the bank accounts of borrower and the regulated entities (like banks and NBFCs) without any pass-through/ pool account of the Lending Service Providers (LSPs).

Issuing a detailed set of guidelines for digital lending, the RBI mentioned about the concerns primarily related to unbridled engagement of third parties, mis-selling, breach of data privacy, unfair business conduct, charging of exorbitant interest rates, and unethical recovery practices. The RBI had constituted a Working Group on 'digital lending including lending through online platforms and mobile applications' (WGDL) on January 13, 2021.

Further, it said regulatory framework to support orderly growth of credit delivery through digital lending methods while mitigating the regulatory concerns has been firmed up. This regulatory framework is based on the principle that lending business can be carried out only by entities that are either regulated by the Reserve Bank or entities permitted to do so under any other law.