Digital lending

Indian Economy glossary

Also called: Digital lending apps · Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT

Meaning

Digital lending is lending done through apps or online platforms at every stage: finding the borrower, checking creditworthiness, paying out the loan and recovering it. It makes credit faster and easier to reach. It has also led to hidden charges, data misuse and harsh recovery, so the RBI brought in rules. Under the RBI guidelines of September 2022:

  • Money must flow only between the borrower's bank account and the account of the regulated entity (the RBI-regulated bank or NBFC)
  • The borrower gets a Key Fact Statement setting out all costs
  • The borrower gets a cooling-off period in which to exit the loan

Example

A student takes a small loan through an app. Under the 2022 guidelines, the money comes straight from the lending NBFC's account, not through the app company's account. Separately, guarantees an app gives the lender to cover defaults (DLG/FLDG) are capped at 5% of the portfolio under the 2023 DLG guidelines.

Don't confuse with

  • Neobank: a digital-only provider of banking services such as accounts. Digital lending is about how loans are delivered.

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