RBI’s New Digital Lending Framework: Borrowers First, and Innovation Always

The RBI has stridently kept pace with India’s evolving digital lending landscape. From setting up a dedicated working group in 2021 to issuing comprehensive guidelines in 2022, along with timely clarifications on default loss guarantees and FAQs, the RBI has displayed its commitment to financial innovation, and orderly growth. The recently revised digital lending framework is another measure where the RBI has sought to mandate clearer accountability between banks and digital lending partners, while promoting transparency across the lending chain.

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The new framework is centred around enabling better decisions by the borrowers and restricting biased promoting of certain lenders by loan service providers. The regulation now requires display of all the loan offers from various lenders so that there is greater transparency and borrowers can make considered choices. Given greater transparency enhances competition and efficiency in the market, this change has been welcomed by various industry players. Vivek Veda, Co-founder at KreditBee, noted, “This is a commendable step by the regulator towards enhancing borrower empowerment and transparency. By introducing such measures, the regulator is clearly prioritizing consumer interests and aiming to create a more equitable lending environment.”.  

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While well-intentioned, the revisions will require operational changes, the impact of which may emerge over time—such as increased credit pulls resulting from multiple lenders’ being selected to offer a loan and other backend changes that will increase transaction costs, which may be passed on to the borrower.  Reflecting on the broader implications for the sector, Vinay Kesari, Director & General Counsel at Setu, remarked: “The new framework provides further recognition and formalisation of the important role that digital lending apps play in the ecosystem. By laying out structured expectations for LSPs and REs, it enables fintech players to scale responsibly, streamline partnerships, and build sustainable credit delivery models with confidence.”

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The RBI has also mandated all Regulated Entities (REs) report digital lending apps (DLAs) they operate, directly or via loan service providers, on the Centralised Information Management System portal. This includes timely updates and certification by a legal compliance officer confirming data accuracy and regulatory compliance. Much like how the RBI already maintains public lists of licensed banks and NBFCs, this move will allow borrowers to verify the authenticity of digital lending apps they interact with.

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By requiring REs to certify and update information, the RBI reinforces a self-regulatory model—embedding accountability within the ecosystem. Ms Sugandh Saxena, CEO of Fintech Association for Consumer Empowerment, welcomed the development, “So many fraudulent apps falsely claim affiliation with regulated entities or RBI. A public listing through source (i.e. regulated entities) gives customers a reliable tool to verify app's ownership of and partnership with regulated entities. For genuine apps, listing gives legitimacy with customers and many other stakeholders including law enforcement agencies. It’s a big win for trust in the digital lending ecosystem,” she said.

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The definition of a DLA has been clarified to mean applications that are either standalone lending apps or are part of a broader suite of functions. This means that even super apps and e-commerce platforms offering embedded credit products may be covered. Smita Jha, a fintech partner at Khaitan & Co., noted that this change could widen the regulatory net. “This could pull in e-commerce platforms that provide customer sourcing interfaces, credit offers, collections and recovery avenues from customers to REs or LSPs. They’ll need to assess compliance obligations more seriously now,” she explained.

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Accordingly, under the revised framework, digital businesses offering any kind of financing options may now be expected to improve their transparency standards and disclose key loan details (such as interest rates and tenor) upfront. Thus, ensuring that customers are informed of all the hidden charges, and do not mistakenly assume that the credit extended is simply a deferred payment arrangement.

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Finally, reinforcing the participatory regulation model further, the RBI has reiterated that all arrangements between REs and LSPs must be formalized through legally binding contracts, with the RE retaining ultimate responsibility for regulatory compliance, while also prescribing data localization, privacy, and storage norms in anticipation of the upcoming Data Protection and Privacy framework.

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With India’s digital lending market expected to hit ₹274 trillion by FY26, regulation that promoters trust and stability in the credit market is vital and timely. The RBI is not alone in this – we note this trend globally as well where regulators are shaping digital lending rules to enhance transparency, competition and customer choice —such as the EU extending oversight of digital operational resilience regulations to fintechs and cloud providers, Australia regulating BNPL providers under responsible lending laws, and Singapore enforcing upfront cost disclosures and interest caps on digital lenders. Saravanan Nattanmai, partner at Premji Invest (BFSI) noted that: “One can see that the RBI is constantly chiselling regulations for a more resilient and transparent digital lending ecosystem—one that is likely to enhance long-term stability, and consequently attract increased institutional capital.”

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Far from merely reacting, the RBI has consistently led innovation in the financial sector through initiatives like UPI, Account Aggregators, fintech regulatory sandboxes, and ongoing work on digital currency. Now, with the new framework in place, the next phase will be efficient implementation to explore new operational efficiencies.  The signal is loud and clear: innovation is welcome, but competitive efficiency and borrower protection is non-negotiable.

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This piece has been authored by Vardaan Ahluwalia, General Counsel at Premji Invest, and Varsha Yogish, Lead Counsel at Premji Invest.

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The views and opinions expressed in this article are those of the authors.