1. BACKGROUND
On May 8, 2025, the Reserve Bank of India ("RBI") issued the Reserve Bank of India (Digital Lending) Directions, 20251 ("DL Directions") marking a significant step in formalising and strengthening the regulatory framework for digital lending in India. The DL Directions consolidate earlier guidelines on digital lending and introduce new measures to address emerging risks in the digital lending ecosystem and enhance consumer protection.
Prior to the DL Directions, the regulatory framework for digital lending in India was primarily shaped by the Guidelines on Digital Lending, 20222 ("DL Guidelines"),3 read with the Guidelines on Default Loss Guarantee (DLG) in Digital Lending, 20234 ("DLG Guidelines")5 along with the corresponding FAQs for both.6
The DL Guidelines were introduced to formalise arrangements wherein the RBI regulated entities such as banks and non-banking financial companies ("NBFCs") (collectively, "REs") outsourced certain functions such as customer acquisition, recovery support, etc. to a lending service provider ("LSP") – to ensure that REs remain fully accountable for regulatory compliance even when certain key functions are performed by unregulated entities. The DL Guidelines aimed to curb the practice of disguised rent-a-license arrangements, where multiple unregulated entities were effectively sourcing borrowers and underwriting loans indirectly through REs. Subsequently, the RBI introduced the DLG Guidelines to regulate arrangements in which the LSPs offer guarantees (commonly known as Default Loss Guarantee or First Loss Default Guarantee ("FLDG")), to put a formal cap on underwriting arrangements by unregulated entities vide which they compensate the partner REs for losses up to a certain percentage of the loan portfolio serviced by the LSP. The DLG Guidelines permit such FLDG arrangements subject to certain conditions.
Separately, on April 26, 2024, the RBI had released a draft circular on "Digital Lending – Transparency in Aggregation of Loan Products from Multiple Lenders".7 Based on the feedback received, the RBI finalised and incorporated relevant provisions in the DL Directions. In this regard, the DL Directions introduce new and enhanced measures with the overall goal of increasing transparency – such as streamlining arrangements involving LSPs partnering with multiple REs for disbursing loans, the establishment of a public directory of digital lenders, etc. While some of the other modifications made in the DL Directions may appear incremental or minor, they introduce importance nuances in the structuring of digital lending arrangements and are likely to have significant practical impact.
2. INTRODUCTION OF NEW MEASURES
2.1 RE-LSP arrangements involving multiple lenders
Framework for web-aggregators of loan products: Based on the WGDL recommendations, the RBI had decided to put in place a regulatory framework for web-aggregators of loan products ("WALP"),8 to ensure that even as unregulated entities participate in the digital lending ecosystem, the REs remain fully accountable for customer protection, compliance, and ethical conduct. This was in response to the increasingly innovative nature of credit products provided through digital lending methods and the accompanying rise of concerns such as involvement of unregulated third parties, mis-selling, breach of data privacy, unfair business conduct, exorbitant interest rates, and unethical recovery practices.
Disclosure requirements: In light of the above, one of the key issues addressed by the DL Directions relate to streamlining arrangements where LSPs partner with multiple REs for disbursing loans. In such arrangements, where LSPs operating Digital Lending Apps ("DLAs") partner with multiple REs, the borrower is typically matched with one of several partner REs, as a result of which, the identity of the potential lender is not disclosed to the borrower at the time of the application, raising concerns around transparency. In order to mitigate risk, the DL Directions now prescribe specific requirements for REs to ensure that borrowers are provided prior information in order to make an informed decision. These obligations, set out under Paragraph 6 of the DL Directions, will come into effect from November 01, 2025.9 Notably, LSPs must now present a digital view of all matching loan offers through the DLA, clearly disclosing key terms such as the names of the lenders, amount and tenor of loan, Annual Percentage Rate ("APR"), monthly repayment obligation and any penal charges so as to allow the borrower to make a fair comparison between multiple offers.10 Additionally, each loan offer must include a link to the relevant Key Fact Statement ("KFS"), and unmatched REs must also be disclosed.11
Modifications to user interface of DLA: While LSPs can retain flexibility in determining how to match borrowers with REs, they must adopt a well-documented and consistent methodology for similarly placed borrowers and products, including any modifications made to such mechanism.12 The manner of displaying offers must be objective and unbiased, and must avoid the use of dark patterns / deceptive patterns that could potentially mislead borrowers into choosing a loan offer from an RE.13 This requires DLAs to display loan offers from multiple REs in a neutral and factual manner, that does not mislead or have manipulative elements in its design that may unfairly influence the borrower's choice. For instance, the platform must not use fake urgency cues to push borrowers towards a particular offer, hide key terms such as processing fees or other charges or use the bait-and-switch method, i.e., displaying loan offers with attractive terms upfront and later changing those terms at a later stage of the application. Such practices raise critical consumer protection concerns, as they can lead borrowers to make ill-informed decisions, potentially resulting in higher costs or unfavourable loan terms. This approach taken in the DL Directions aligns with the Guidelines for Prevention and Regulation of Dark Patterns, 202314 issued by the Central Consumer Protection Authority, which prohibits the use of dark patterns15.16
2,2 Mandatory DLA reporting to the RBI on the CIMS Portal
Impact on business: These measures are likely to have a significant operational and compliance impact for LSPs and REs, and will have implications on how digital lending products are structured and presented to borrowers. LSPs will need to modify user interfaces and backend processes to ensure compliance with the new display and disclosure standards. DLAs will need to be reconfigured in such a manner to present loan offers in a more structured and comparative format while ensuring there are uniform disclosures and embedded links to each respective KFS. In addition to interface changes, LSPs and REs will also need to revisit and update platform terms of use, partner agreements, and consent mechanisms to reflect the new regulatory obligations and ensure consistency with consumer protection and data privacy laws. Furthermore, REs will have to align with LSPs on a consistent methodology that is capable of being audited and produced as records upon request to demonstrate compliance. Careful consideration also ought to be given to ensuring there is no perceived biased ranking or possible hidden incentives that may invite regulatory scrutiny. Overall, these measures introduced vide the DL Directions appear to be an effort towards creating a more transparent and pro-competitive marketplace to give borrowers more visibility over a broader range of offers.
Reporting requirements: The Centralised Information Management System ("CIMS") portal is a centralised digital repository to systematically capture data on digital lending activities by requiring all REs to report comprehensive information regarding the DLAs they deploy or have joined (whether they are owned by the RE or by LSPs).17 Such reporting must be done on or before June 15, 2025, and REs must submit details of each DLA, including those operated exclusively or as platform participants in the prescribed format provided in Annex I of the DL Directions.18 This list must be updated accurately on an ongoing basis, including any changes whenever an additional DLA is onboarded or an ongoing engagement ceases to exist.19 A key element to this measure is the certification requirement, under which the Chief Compliance Officer or an official designated by the board of directors ("BoD") of the RE must certify that the data on DLAs submitted on the CIMS portal is correct and that the DLAs are in compliance with regulatory requirements, including the DL Directions.20 This includes certifying that that DLAs meet key compliance requirements such as linking to the RE's website with detailed product and grievance redressal information, appointing a nodal officer for borrower complaints, ensuring data practices comply with Paragraphs 12 and 13 of the DL Directions and other applicable laws, and that the DLA's particulars are duly disclosed on the RE's website in line with the DL Directions.21 REs must also ensure that the inclusion of any third party DLAs in the CIMS portal, is not misinterpreted by such DLAs (or any associated entity) as a form of registration, authorisation or endorsement by the RBI.22
Impact of CIMS: The introduction of the CIMS portal is a key reform that aims at strengthening the ever-evolving digital lending ecosystem, particularly in tackling the surge of illegal loan apps. As highlighted in the WGDL report, digital lending operates on a national scale and often involves players that operate across jurisdictions.23 Therefore, monitoring activities on a local level may not be sufficient for the purpose of the digital lending framework. A unified, real-time system like that of CIMS allows for regulatory agencies to access 'market intelligence' across the country. This helps to ensure that any patterns such as rapid growth of questionable products and repeated consumer complaints are nipped in the bud through timely and coordinated regulatory action. It is aimed to help in taking down illegal loan apps that may offer credit without RBI oversight, collect excessive charges or levy hidden fees, misuse personal data and employ aggressive or coercive recovery methods. By directing REs to map and disclose every DLA it engages with and making this information publicly accessible via the CIMS portal, the RBI is effectively creating a public registry of trusted DLAs that will help consumers distinguish between legitimate and illegal platforms.
3. KEY CLARIFICATIONS IN RELATION TO EXISTING MEASURES
3.1 Revisions in definitions
The DL Directions have now formally clarified, in line with market practice, that a DLA can either be a mobile/web application that facilitates digital lending on a standalone basis, or it can be an application that offers facilitation of digital lending as a part of the suite of offerings that such application has.24 The RBI has also made a minor modification to the definition of LSP to clarify that LSPs are agents of REs who carry out digital lending function(s) of the RE25 – thereby narrowing the earlier broad definition of LSPs being agents of REs that carried out function(s) of an RE.26 The RBI appears to have sought to prevent any ambiguity in interpretation and has narrowed the scope and explicitly limited LSPs' functions to be within the scope of digital lending.
In context of loans provided by REs, APR, has now been defined to have the meaning ascribed to in in RBI's circular governing KFS27 - such definition is broad in nature, and defines it to mean an annual cost of credit to the borrower, including interest rate and all other charges linked to the credit facility.28 This contrasts with the DL Guidelines which specifically excluded contingent charges such as penal charges and late payment charges from its ambit.29 While the KFS Circular does not explicitly clarify whether contingent charges are also to be taken into consideration when computing the APR, inference can be drawn from the illustration provided in Annex B of the KFS Circular. Such illustration indicates that when taking into account fees and charges for computing the APR, only charges such as processing fee, insurance charges, etc., are to be considered, and contingent charges are not to be considered.30
Separately, it is also relevant to note that while the DL Directions have retained the concept of a cooling-off / look-up period,31 the definition for the same, which was prescribed in the DL Guidelines,32 has been removed from the DL Directions, for the purposes of flexibility. In this regard, it is also relevant to note that the DL Guidelines required a minimum cooling-off period of 3 (three) days for loans with a tenor of a week or more, and 1 (one) day for loans of a shorter tenor.33 Now, a uniform minimum cooling-off period of 1 (one) day applies to all loans, regardless of tenor.34 The applicable cooling-off period has to be determined by the RE's BoD, and is required to be laid down in the loan policy of the RE.35
3.2 RE-LSP Arrangements
Such documentation requirement can be said to be aimed at ensuring consistency in applicability of the cooling-off period, so that there is no scope for any favourable treatment of certain borrowers or categories of borrowers.
Outsourcing: Given that RE-LSP arrangements come under the larger purview of financial outsourcing arrangements by REs, the DL Directions have now included specific compliances to ensure conformity with various outsourcing guidelines applicable to REs,36 issued by the RBI.37
Contractual requirements: While as a practice RE-LSP arrangements are typically governed by a contract, the DL Directions now explicitly mandate a formal contract between REs and LSPs ("RE-LSP Contracts"), clearly outlining roles, rights, and obligations of each party.38 This aligns with the Outsourcing Guidelines, which requires REs and their outsourced service providers to enter into a legally enforceable contract (covering the terms and conditions of their arrangement, along with the other mandatory clauses as prescribed in such Outsourcing Guidelines).39 Further, the DL Directions also require REs to undertake review of the LSP's conduct and adherence to the contract, and to take appropriate actions in the event there is any non-conformance with the terms of such contract by the LSP.40 While the DL Directions do not prescribe what actions may be taken, this would typically be contractually defined and could include actions such as suspension of services, termination of the agreement, etc.
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Footnotes
1 The DL Directions are available here.
2 The DL Guidelines are available here.
3 This was issued pursuant to the recommendations of the Working Group on 'digital lending including lending through online platforms and mobile apps'3 ("WGDL"). Please see our analysis of 'Data and Digital Lending' available here.
4 The DLG Guidelines are available here.
5 Please see our analysis of the DLG Guidelines available here.
6 Please see the FAQs on the DL Guidelines available here and our analysis of the DL Guidelines FAQs here. The FAQs on the DLG Guidelines available here.
7 The draft circular on "Digital Lending – Transparency in Aggregation of Loan Products from Multiple Lenders available here.
8 WALP entails aggregation of loan offers from multiple lenders on an electronic platform which enables the borrowers to compare and choose the best available option to avail loan from one of the available lenders.
9 Paragraph 2(ii) of the DL Directions.
10 Paragraph 6(i) and (iii) of the DL Directions.
11 Paragraph 6 (iii) of the DL Directions.
12 Paragraph 6 (ii) of the DL Directions.
13 Paragraph 6 (iv) of the DL Directions.
14 Guidelines for Prevention and Regulation of Dark Patterns, 2023 are available here.
15 "Dark patterns" means any practices or deceptive design patterns using UI/UX (user interface/user experience) interactions on any platform; designed to mislead or trick users to do something they originally did not intend or want to do; by subverting or impairing the consumer autonomy, decision making or choice; amounting to misleading advertisement or unfair trade practice or violation of consumer rights.
16 Please see our analysis on the Guidelines for Prevention and Regulation of Dark Patterns, 2023 available here.
17 Paragraph 17 (i) of the DL Directions.
18 Paragraph 17 (i) of the DL Directions.
19 Paragraph 17 (ii) of the DL Directions.
20 Paragraph 17 (iii) of the DL Directions.
21 Paragraph 17 (iv) of the DL Directions.
22 Paragraph 17 (vi) of the DL Directions.
23 Section 3.4.2.3 of the WGDL report.
24 Paragraph 4(iv) of the DL Directions.
25 Paragraph 4(v) of the DL Directions.
26 Paragraph 2.5 of the DL Guidelines.
27 Circular on 'Key Facts Statement (KFS) for Loans & Advances' dated April 15, 2024 available here ("KFS Circular").
28 Paragraph 4(i) of the DL Directions.
29 Paragraph 2.1 of the DL Guidelines.
30 Serial Number 6 of the APR illustration (which stipulates fees and charges to be considered when computing APR) set out in Annex B of the KFS Circular makes reference only to serial number 8 of the KFS template contained in Annex A of the KFS Circular, which deals only with fees such as processing fee, insurance charges, while contingent charges is dealt with separately in serial number 9 of the KFS template, which does not find any mention or reference in the APR illustration.
31 Paragraph 10 of the DL Directions.
32 Paragraph 2.2 of the DL Guidelines.
33 Paragraph 8 of the DL Guidelines.
34 Paragraph 10(i) of the DL Directions.
35 Paragraph 10(i) of the DL Directions.
36 Annexure XIII of the Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 issued by the RBI on October 19, 2023 available here. ("SBR MD"); Guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks issued by the RBI on November 03, 2006 available here. ("Bank Guidelines"); Guidelines for Managing Risk in Outsourcing of Financial Services by Co-operative Banks dated June 28, 2021 available here. ("Co-Op Bank Guidelines") (collectively "Outsourcing Guidelines").
37 Paragraph 5(vi) of the DL Directions.
38 Paragraph 5(i) of the DL Directions.
39 Paragraph 5.5 of the SBR MD, Paragraph 5.5 of the Bank Guidelines, and Paragraph 5.5 of the Co-Op Bank Guidelines.
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