Executive Summary:
This circular, now repealed, addresses concerns regarding non-transparent practices of digital lending platforms (DLPs) and the need for banks and NBFCs to adhere to Fair Practices Code and outsourcing guidelines. It emphasizes that banks and NBFCs are responsible for compliance even when using DLPs for sourcing or recovery. The circular mandates transparency and outlines specific instructions for banks and NBFCs engaging with DLPs. This circular has been repealed and replaced by Reserve Bank of India Digital Lending Directions, 2025 dated May 8, 2025.
Key Points / Main Content:
* The circular has been repealed and replaced by Reserve Bank of India Digital Lending Directions, 2025 dated May 8, 2025.
Responsibilities of Banks and NBFCs:
* Banks and NBFCs must adhere to Fair Practices Code guidelines in letter and spirit, irrespective of whether lending is through their own or outsourced digital platforms.
* Regulatory instructions on outsourcing of financial services and IT services must be meticulously followed.
* Outsourcing does not diminish the bank's/NBFC's obligation; compliance remains their responsibility.
Requirements for Engaging Digital Lending Platforms (DLPs):
* Names of DLPs engaged as agents must be disclosed on the bank's/NBFC's website.
* DLPs must disclose upfront to the customer the name of the bank/NBFC they represent.
* A sanction letter on the bank's/NBFC's letterhead must be issued to the borrower immediately after sanction but before loan execution.
* A copy of the loan agreement and all enclosures must be furnished to borrowers at the time of sanction/disbursement.
* Effective oversight and monitoring of engaged DLPs is required.
* Adequate efforts must be made to create awareness about the grievance redressal mechanism.
Consequences of Violation:
* Any violation by banks and NBFCs will be viewed seriously, including those operating solely digitally or through both digital and brick-and-mortar channels.
Impact Analysis:
Banks (All Scheduled Commercial Banks excluding RRBs)
* Impact: Banks must ensure their digital lending practices, whether direct or outsourced, comply with Fair Practices Code and outsourcing guidelines. They are responsible for the actions of their DLP agents.
* Action Required: Disclose DLP agents on their website, ensure DLPs disclose the bank's name upfront, issue sanction letters on bank letterhead, provide loan documents to borrowers, monitor DLPs, and create grievance redressal awareness.
Non-Banking Financial Companies (NBFCs), including Housing Finance Companies
* Impact: NBFCs, including those operating digitally, must adhere to the same standards as banks regarding Fair Practices Code, outsourcing guidelines, and transparency in digital lending.
* Action Required: Same actions as banks are required: disclose DLP agents, ensure transparency by DLPs, issue sanction letters, provide loan documents, monitor DLPs, and create grievance redressal awareness.
Borrowers:
* Impact: Borrowers should benefit from increased transparency regarding the lender and access to grievance redressal mechanisms.
* Action Required: Borrowers should check the bank/NBFC website for the list of approved digital lending platforms and ensure they receive the sanction letter and loan agreement directly from the bank/NBFC.
Digital Lending Platforms (DLPs):
* Impact: DLPs must operate transparently, disclosing the name of the bank/NBFC they represent and adhering to the Fair Practices Code.
* Action Required: DLPs must disclose the name of the bank/NBFC they are representing upfront to the customer. They must also adhere to the Fair Practices Code guidelines as directed by the engaging bank/NBFC.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the banking sector.
Reserve Bank of India Digital Lending Directions, 2025: A set of guidelines issued by the Reserve Bank of India pertaining to digital lending practices.
Scheduled Commercial Banks: Banks in India that are listed in the Second Schedule to the Reserve Bank of India Act, 1934.
Non-Banking Financial Companies (NBFCs): Financial institutions in India that provide banking services but do not hold a banking license.
Fair Practices Code: A set of guidelines issued by the Reserve Bank of India that emphasizes transparency and fair treatment of customers by banks and NBFCs.
Digital Lending Platforms: Platforms that use technology to facilitate the lending process.
Mumbai, Maharashtra: A city in India where the central office of Department of Regulation is located.
Master Directions on Non-Banking Financial Company Systemically Important Non-Deposit taking Company and Deposit taking Company Reserve Bank Directions, 2016: Master Directions issued by Reserve Bank regarding NBFC's
The Circular has been repealed. Please refer to Reserve Bank of India (Digital Lending) Directions, 2025 dated May 8, 2025.
RBI/2019-20/258
DOR (NBFC) (PD) CC. No.112/03.10.001/2019-20 June 24, 2020
All Scheduled Commercial Banks (excluding RRBs)
All Non-Banking Financial Companies (including Housing Finance Companies)
Madam/ Dear Sir,
Loans Sourced by Banks and NBFCs over Digital Lending Platforms:
Adherence to Fair Practices Code and Outsourcing Guidelines
It has been observed that many digital platforms have emerged in the financial sector
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claiming to offer hassle free loans to retail individuals, small traders, and other
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borrowers. Banks and NBFCs are also seen to be engaging digital platforms to provide
loans to their customers. In addition, some NBFaCs have been registered with Reserve
Bank as ‘digital-only’ lending entities while sorme NBFCs are registered to work both on
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digital and brick-mortar channels of credit delivery. Thus banks and NBFCs are
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observed to lend either directly through their own digital platforms or through a digital
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lending platform under an outsouricing arrangement.
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2. It has further been observed that the lending platforms tend to portray themselves as
lenders without disclosing the name of the bank/ NBFC at the backend, as a
consequence of which, customers are not able to access grievance redressal avenues
available under the regulatory framework. Of late, there are several complaints against
the lending platforms which primarily relate to exorbitant interest rates, non-transparent
methods to calculate interest, harsh recovery measures, unauthorised use of personal
data and bad behavior.
3. Although digital delivery in credit intermediation is a welcome development, concerns
emanate from non-transparency of transactions and violation of extant guidelines on
outsourcing of financial services and Fair Practices Code, etc. issued to banks and
NBFCs, a reference to which is drawn in the Annex. It is, therefore, reiterated that banks
and NBFCs, irrespective of whether they lend through their own digital lending platform
or through an outsourced lending platform, must adhere to the Fair Practices Code
guidelines in letter and spirit. They must also meticulously follow regulatory instructions
on outsourcing of financial services and IT services.
िविनयमन िवभागक���य कायार्लय 2री मंिजलमुख्यकायार्लयभवन, शहीदभगत�संहमागर्फोटर्मुंबई - 400 001
दरू ध्वनी:+91-22-22709038, ई-मेल:helpdnbr@rbi.org.in
Department of Regulation, Ce, ntral Office, 2,n d Floor, M,a in O ffice Bui lding ,Shah idBha gat Sing h M,a rg, Fort, Mumbai – 400 001
Tel No:+91-22-22709038, Email: helpdnbr@rbi.org.in
�हदं ीआसान हैइसका �योग बढाईये
,4. It must be noted that outsourcing of any activity by banks/ NBFCs does not diminish
their obligations, as the onus of compliance with regulatory instructions rests solely with
them. Wherever banks and NBFCs engage digital lending platforms as their agents to
source borrowers and/ or to recover dues, they must follow the following instructions:
a) Names of digital lending platforms engaged as agents shall be disclosed on the
website of banks/ NBFCs.
b) Digital lending platforms engaged as agents shall be directed to disclose upfront
to the customer, the name of the bank/ NBFC on whose behalf they are
interacting with him.
c) Immediately after sanction but before execution of the loan agreement, the
sanction letter shall be issued to the borrower on the letter head of the bank/
NBFC concerned.
d) A copy of the loan agreement along with a copy each of all enclosures quoted in
the loan agreement shall be furnished to all borrowers at the time of sanction/
disbursement of loans.
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e) Effective oversight and monitoring shall be ensured over the digital lending
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platforms engaged by the banks/ NBFCs.
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f) Adequate efforts shall be made towards creation of awareness about the
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grievance redressal mechanism.
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5. Any violation in this regard by banks and NBFCs (including NBFCs registered to
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operate on ‘digital-only’ or on digital and brick-mortar channels of delivery of credit) will
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be viewed seriously.
Yours faithfully
(Manoranjan Mishra)
Chief General ManagerAnnex
Reference to extant instructions
a) Para 2.5.2 (ii) (loan appraisal and terms/conditions) of ‘Guidelines on Fair Practices
Code for Lender’ and Para 2.6 of ‘Guidelines on Recovery Agents engaged by banks’, of
Master Circular on ‘Loans and Advances – Statutory and Other Restrictions’ dated July
01, 2015;
b) Para 4 of Annex to circular on ‘Guidelines on Managing Risks and Code of Conduct in
Outsourcing of Financial Services by banks’ dated November 03, 2006
c) Para 8.5(b) of Master Circular on ‘Customer Service in Banks’ dated July 01, 2015;
d) Para 29 (loan appraisal and terms/conditions) of the guidelines on Fair Practices Code
and Para 4 of Annex XXV (Directions on Managing Risks and Code of Conduct in
Outsourcing of Financial Services by NBFCs) of the Master Directions on Non-Banking
Financial Company - Systemically Important Non-Deposit taking Company and Deposit
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taking Company (Reserve Bank) Directions, 2016
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e) Para 7.2 of Section A of Master Direction on ‘Information Technology Framework for the
NBFC Sector’ dated June 08, 2017; and, a
f) Para 29 (loan appraisal and terms/conditiorns) of the guidelines on Fair Practices Code
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and Para 4.1 of Annex XIX (Directions on Managing Risks and Code of Conduct in
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Outsourcing of Financial Services by NBFCs) of the Master Directions on Non-Banking
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Financial Company – Non-Siystemically Important Non-Deposit taking Company
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(Reserve Bank) Directions, 2016.
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