The Reserve Bank of India on Wednesday issued detailed guidelines that will increase scrutiny and supervision over digital lending apps and lenders who engage with them, after several complaints of malpractice against such apps.
Only regulated entities such as banks and shadow banks will be allowed to disburse and collect re-payments on loans, and this will not be left to third parties, the central bank said.
"All loan disbursals and repayments are required to be executed only between the bank accounts of borrower and the regulated entity without any passthrough/pool account of the lending service providers or any third party," the RBI said.
The fee paid to the apps would now have to be borne by the lenders and the onus would not fall on the borrowers, it added.
The central bank also addressed concerns over data collection.
"Data collected by DLAs (digital lending apps) should be need-based, should have clear audit trails and should be only done with prior explicit consent of the borrower," the RBI said as part of the guidelines.
It also prohibited automatic increases in credit limits without explicit consent of the borrower and said that interest rates and other charges needed to be clearly communicated to the borrower.
In January last year, the central bank had formed a committee to formulate norms on digital lending after serious concerns were raised by borrowers malpractices. (Reporting by Swati Bhat and Nupur Anand; Editing by Alex Richardson)