The 2022 framework, refined
The Reserve Bank of India's Digital Lending Guidelines (DLG), first issued in September 2022 and refined through 2024, fundamentally restructured how digital lending operates in India. If you run — or plan to run — a digital lending business, compliance is non-negotiable.
The five pillars of the DLG
1. Regulated Entity (RE) accountability
The NBFC or bank whose balance sheet funds the loan is fully accountable for the actions of its Lending Service Provider (LSP). You cannot outsource compliance.
2. Key Fact Statement (KFS)
Every loan must have a standardised KFS — a single-page document disclosing APR, all charges, cooling-off period, and total repayment. The format is prescribed by RBI. No KFS = no disbursement.
3. Cooling-off period
Borrowers can exit any digital loan within a cooling-off period (typically 3–7 days for short-term loans) by paying back principal plus pro-rata interest. No prepayment penalty, no foreclosure fee.
4. Fund flow restrictions
Loan disbursement must go directly from the RE's bank account to the borrower's account — not via the LSP. Repayments must flow directly to an escrow maintained by the RE. No pass-through.
5. Data privacy
Explicit borrower consent is required for every data point collected. Phone contacts, media files, location — all restricted. DPDP Act 2023 adds an additional layer of compliance.
What's changed in the 2024 update
- Clause on "automatic credit lines" tightened — top-ups require fresh consent & fresh KFS
- LSP disclosure requirements expanded — must publish lender name, RE registration no., grievance officer
- Penalty for non-compliance clarified — RE can lose digital lending permission
- Default loss guarantee (DLG) structure formalised — capped at 5% of outstanding portfolio
Action items for founders
- Audit your KFS template against RBI's prescribed format
- Move all disbursement & repayment flows to direct RE-to-borrower
- Re-verify your data collection consent flows
- Update your LSP agreement with the new disclosure schedule
- Set up a grievance redressal mechanism with a 30-day SLA
Need help with compliance?
Our compliance team can audit your existing setup or build it from scratch. Reach out for a no-obligation consultation.