Loans on debit cards to be governed by digital lending guidelines: RBI

Payment aggregators that work as LSPs have to comply with digital lending guidelines

Loans offered on debit cards, including equated monthly instalment (EMI) programmes, would be governed under the digital lending guidelines of the Reserve Bank of India, the central bank clarified on Tuesday.

EMI programmes on credit cards would continue to be governed by rules laid down in the master direction on credit card and debit card issuance (2022). But loan products other than the EMI programmes offered on credit cards, which are not covered under the master direction on credit and debit card issuance, would have to adhere to the digital lending guidelines of RBI.

Responding to the frequently asked questions (FAQs) on digital lending guidelines, RBI said, “EMI programmes on credit cards are governed specifically by …‘Master Direction on Credit Card and Debit Card – Issuance and Conduct, 2022’. Such transactions shall not be covered under the guidelines on digital Lending”.

“However other loan products offered on credit Cards which are not covered/ envisaged under …the Master Direction shall be governed by the stipulations laid down under the guidelines on digital Lending. Further, the guidelines will also be applicable to all loans offered on debit cards, including EMI programmes”, the central bank said.

The digital lending guidelines mandate that the regulated entities have to provide a key fact statement (KFS), which shall contain the details of annual percentage rate (APR), the recovery mechanism, details of grievance redressal officer designated specifically to deal with digital lending matter and the cooling-off/ look-up period. Further, all loan disbursements, servicing, repayment, etc., has to be executed by the borrower directly in the RE’s bank account without any pass-through account/ pool account of any third party, except in case of flow of money between regulated entities (REs) for co-lending transactions.

“The exemption can be extended to co-lending arrangements between REs for non-priority sector loans (PSL) subject to the condition that no third party other than the REs in a co-lending transaction should have direct or indirect control over the flow of funds at any point of time”, the RBI said.

Meanwhile, RBI has also clarified that entities offering only payment aggregator (PA) services would remain out of the ambit of digital lending guidelines, but any PA also performing the role of a lending service provider (LSP) must comply with those guidelines.

Further, RBI has said that at the time of sanction of loan, the borrower needs to be conveyed the name of empanelled agents authorised to contact them in case of loan default. However, if the loan turns delinquent and the recovery agent has been assigned to the borrower, the particulars of such a recovery agent must be communicated to the borrower through email/SMS before the recovery agent contacts the borrower for recovery.