RBI’s Regulatory Blueprint for Web Aggregators of Loan Products

The RBI – Reserve Bank of India, often referred to as India's central bank, is responsible for managing the country's monetary policy and regulating its banking system. It regularly introduces reforms and guidelines to fortify the Indian financial market. This included the release of draft regulations for web aggregations of loan products in digital lending.

For banking and non–banking financial companies (NBFCs) the RBI is proposing to ensure their loan service providers (LSPs) display all available loan options from various lenders digitally for borrowers to see. 

According to the RBI, the digital presentation should include specifics such as the lending institution's name (either a bank or NBFC), the loan amount and duration, the annual percentage rate, and crucial terms and conditions. This setup should allow borrowers to easily compare different loan offers.

The RBI outlined these rules in the draft guidelines for regulating how lending service providers (LSPs) aggregate loan products. The objective is to promote transparency and ensure borrowers have access to information about potential lenders in advance. While LSPs have the flexibility to employ various methods to gauge lender interest, the RBI emphasized the importance of adopting a consistent approach, which should be transparently disclosed on their website. It also stated that there must be a link to the key facts statement (KFS) for each of the regulated entities. 

The central bank emphasized that the information presented by the LSP should remain impartial and avoid any direct or indirect promotion or endorsement of a specific lender's product. This includes refraining from using any methods or deceptive strategies to sway borrowers toward selecting a particular loan offer.

An LSP acts as a representative of regulated entities like banks and NBFCs, performing some or all functions of a lender in activities such as acquiring customers, providing underwriting and pricing support, managing services, monitoring, and facilitating the recovery of specific loans or loan portfolios. These activities must align with the outsourcing guidelines issued by the Reserve Bank.

The RBI mentioned that a lot of LSPs provide aggregation services for loan products. In this setup, either an LSP or a regulated entity, like banks and NBFCs acting as LSPs, has agreements with multiple lenders for outsourcing. Then, the Digital Lending App or Platform (DLA) of the LSP or regulated entities matches borrowers with one of these lenders.

In situations like these, especially when an LSP works with several lenders, the borrower might not know upfront which lender they'll be dealing with, the RBI mentioned.

Thank you.

Regards,

Vansh Jain,

Kautilya, IBS Mumbai.