Regulation of Digitally Sourced Loans

In a significant development, the RBI has, by way of its Circular dated June 24, 2020, issued instructions to all scheduled commercial banks (excluding rural regional banks) and non-banking financial companies (including housing finance companies) (collectively ‘Lending Institutions’) on the application of the fair practices code and outsourcing guidelines, in letter and in spirit, to loans sourced on or recovered through digital lending platforms (‘Digital Platforms’), whether it be the Lending Institutions’ own platforms or other platforms.

The RBI further clarified that in case of outsourcing of any activity by the Lending Institutions: (i) the onus of compliance with regulatory instructions continues to rest solely on them; and (ii) they would need to meticulously follow regulatory instructions on outsourcing of financial services and information technology services. The RBI has also issued certain instructions to the Lending Institutions engaging Digital Platforms as their agents for sourcing borrowers or recovering dues.

Published In:Inter Alia - Quarterly Edition - June 2020 [ English Chinese japanese ]
Date: June 30, 2020