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The Reserve Bank of India (RBI) on Friday (September 2) directed all regulated entities to put in place adequate systems and processes by November 30 to ensure that all existing digital loans are in compliance with the recently-issued digital lending guidelines.

According to the RBI, the decision was taken to ensure a smooth transition to the new regime. 

“In order to ensure a smooth transition, REs (regulated entities) shall be given time till November 30, 2022, to put in place adequate systems and processes to ensure that ‘existing digital loans’ (sanctioned as on the date of the circular) are also in compliance with these guidelines in both letter and spirit,” the central bank said in a statement. 

The directions in the circular will be applicable to both existing customers availing fresh loans and to new customers onboarded by digital lending platforms from September 2, it said.

The central bank also put the onus on regulated entities to ensure adherence to rules by its outsourcing partners.

“The REs are advised to ensure that the lending service providers engaged by them and the digital lending apps comply with the guidelines contained in this circular,” the statement said. 

“It is reiterated that outsourcing arrangements entered by REs with an LSP/DLA does not diminish the REs’ obligations and they shall continue to conform to the extant guidelines on outsourcing,” it added

Last month, the RBI released the first set of much-awaited digital lending guidelines which charted out a regulatory framework for lenders to follow. The guidelines were formulated in a bid to crackdown on the predatory digital lending practices prevalent across the country, specify technology requirements and to offset any financial challenges emerging to the economy from excessive lending by startups. 

According to the guidelines, the cost of digital loans need to be disclosed upfront to the borrower and there should be no allowance for increasing credit limits automatically. 

The norms also make the lender liable for payment of all fees and charges owed to the loan service provider (LSPs). Regulated entities have also been made responsible for ensuring privacy and security of customer data.

The new guidelines are based on the recommendations of a working group constituted by the central bank for enacting regulations for digital lending. The RBI, while releasing the guidelines, also said that some of the recommendations of the working group would require wider consultations with the central government and other stakeholders due to the need for legislative interventions.

According to an Inc42 report, the total addressable fintech market in India is expected to surge to $1.3 Tn by 2025. Of this, lendingtech is likely to account for 47% or $616 Bn of the total market opportunity.