Scope of Application for Digital Lending: These guidelines are applicable to digital lending extended by:

• • All Commercial Banks,
  • Primary (Urban) Co-operative Banks,
  • State Co-operative Banks,
  • District Central Co-operative Banks; and
  • Non-Banking Financial Companies (including Housing Finance Companies)

Definitions

1. Annual Percentage Rate (APR):It is the effective annualized rate charged to the borrower of a digital loan. It shall be based on an all-inclusive cost and margin including cost of funds, credit cost and operating cost, processing fee, verification charges, maintenance charges, etc. It excludes contingent charges like penal charges, late payment charges, etc.

2. Cooling off/look-up period:A cooling off/ look-up period is the time window as determined by the Board of the RE which shall be given to borrowers for exiting digital loans, in case a borrower decides not to continue with the loan.

3. Digital Lending:A remote and automated lending process, largely by use of seamless digital technologies for customer acquisition, credit assessment, loan approval, disbursement, recovery, and associated customer service.

4. Digital Lending Apps/Platforms (DLAs):Mobile and web-based applications with user interface that facilitate digital lending services. DLAs will include apps of the Regulated Entities (REs) as well as those operated by Lending Service Providers (LSPs) engaged by REs for extending any credit facilitation services in conformity with extant outsourcing guidelines issued by the Reserve Bank.

5. Lending Service Provider (LSP):An agent of a Regulated Entity who carries out one or more of lender’s functions or part thereof in customer acquisition, underwriting support, pricing support, servicing, monitoring, recovery of specific loan or loan portfolio on behalf of REs in conformity with extant outsourcing guidelines issued by the Reserve Bank.

6. Regulated Entities (REs):The entities to whom this circular is applicable as stated at Para 1 of these guidelines.

A. Customer Protection and Conduct requirements

Loan Disbursal, Servicing and Repayment REs shall ensure that all loan servicing, repayment, etc., shall be executed by the borrower directly in the RE’s bank account without any pass-through account/ pool account of any third party. The disbursements shall always be made into the bank account of the borrower except for disbursals covered exclusively under statutory or regulatory mandate (of RBI or of any other regulator), flow of money between REs for co-lending transactions² and disbursals for specific end use, provided the loan is disbursed directly into the bank account of the end-beneficiary. REs shall ensure that in no case, disbursal is made to a third-party account, including the accounts of LSPs and their DLAs, except as provided for in these guidelines.

Collection of fees, charges, etc.

Payment of Fees/Charges: REs shall ensure that any fees, charges, etc., payable to LSPs are paid directly by them (REs) and are not charged by LSP to the borrower directly.

Penal Interest/ Charges: The penal interest/charges levied, if any, on the borrowers shall be based on the outstanding amount of the loan. Further, rate of such penal charges shall be disclosed upfront on an annualized basis to the borrower in the Key Fact Statement (KFS).

Disclosures to borrowers

Annual Percentage Rate  APR as all-inclusive cost of digital loans for the borrower shall be disclosed upfront by REs and shall also be a part of the Key Fact Statement.

Key Fact Statement

1. 1. 1. REs shall provide a Key Fact Statement (KFS) to the borrower before the execution of the contract in a standardized format for all digital lending products. The format of KFS is provided in Annex-II.
      2. The KFS shall, apart from other necessary information, contain the details of APR, the recovery mechanism, details of grievance redressal officer designated specifically to deal with digital lending/ FinTech related matter and the cooling-off/ look-up period.
      3. Any fees, charges, etc., which are not mentioned in the KFS cannot be charged by the REs to the borrower at any stage during the term of the loan.

• • • Digitally signed documents REs shall ensure that digitally signed documents (on the letter head of the RE) viz., KFS, summary of loan product, sanction letter, terms and conditions, account statements, privacy policies of the LSPs/DLAs with respect to borrowers data, etc. shall automatically flow to the borrowers on their registered and verified email/ SMS upon execution of the loan contract/ transactions.
    • List of LSPs REs shall prominently publish the list of their DLAs, LSPs engaged by them and DLAs of such LSPs with the details of the activities for which they have been engaged, on their website.
    • Product information REs shall ensure that their DLAs or DLAs of their LSPs at on-boarding/sign-up stage, prominently display information relating to the product features, loan limit and cost, etc., so as to make the borrowers aware of these aspects.
    • Details of recovery agent REs shall communicate to the borrower, at the time of sanctioning of the loan and also at the time of passing on the recovery responsibilities to an LSP or change in the LSP responsible for recovery, the details of the LSP acting as recovery agent who is authorised to approach the borrower for recovery.
    • Link to website REs shall ensure that DLAs of REs and LSPs have links to REs’ website where further/ detailed information about the loan products, the lender, the LSP, particulars of customer care, link to Sachet Portal, privacy policies, etc. can be accessed by the borrowers. It shall be ensured that all such details are available at a prominent single place on the website for ease of accessibility.

Grievance Redressal

1. Nodal grievance redressal officer REs shall ensure that they and the LSPs engaged by them shall have a suitable nodal grievance redressal officer to deal with FinTech/ digital lending related complaints/ issues raised by the borrowers. Such grievance redressal officer shall also deal with complaints against their respective DLAs. Contact details of grievance redressal officers shall be prominently displayed on the websites of the RE, its LSPs and on DLAs and also in the KFS provided to the borrower. Further, the facility of lodging complaint shall also be made available on the DLA and on the website as stated above. It is reiterated that responsibility of grievance redressal shall continue to remain with the RE.

2. Complaint Lodged If any complaint lodged by the borrower against RE or the LSP engaged by the RE is not resolved by the RE within the stipulated period (currently 30 days), he/she can lodge a complaint over the Complaint Management System portal under the Reserve Bank-Integrated Ombudsman Scheme. For entities currently not covered under RB-IOS, complaint may be lodged as per the grievance redressal mechanism prescribed by the Reserve Bank.

B. Assessing the borrower’s creditworthiness

1. 1. REs shall capture the economic profile of the borrowers covering (age, occupation, income, etc.), before extending any loan over their own DLAs and/or through LSPs engaged by them, with a view to assessing the borrower’s creditworthiness in an auditable way.
   2. REs shall ensure that there is no automatic increase in credit limit unless explicit consent of borrower is taken on record for each such increase.

Cooling off/look-up period A borrower shall be given an explicit option to exit digital loan by paying the principal and the proportionate APR without any penalty during this period. The cooling off period shall be determined by the Board of the RE. The period so determined shall not be less than three days for loans having tenor of seven days or more and one day for loans having tenor of less than seven days. For borrowers continuing with the loan even after look-up period, pre-payment shall continue to be allowed as per extant RBI guidelines.

Due diligence and other requirements with respect to LSPs

• • REs must conduct enhanced due diligence before entering into a partnership with a LSP for digital lending, taking into account its technical abilities, data privacy policies and storage systems, fairness in conduct with borrowers and ability to comply with regulations and statutes.
  • REs shall carry out periodic review of the conduct of the LSPs engaged by them.
  • REs shall impart necessary guidance to LSPs acting as recovery agents to discharge their duties responsibly and ensure that they comply with the extant instructions in this regard.

Technology and Data Requirement

Collection, usage and sharing of data with third parties

• • • REs shall ensure that any collection of data by their DLAs and DLAs of their LSPs is need-based and with prior and explicit consent of the borrower having audit trail. In any case, REs shall also ensure that DLAs desist from accessing mobile phone resources like file and media, contact list, call logs, telephony functions, etc. A one-time access can be taken for camera, microphone, location or any other facility necessary for the purpose of on-boarding/ KYC requirements only, with the explicit consent of the borrower.
    • The borrower shall be provided with an option to give or deny consent for use of specific data, restrict disclosure to third parties, data retention, revoke consent already granted to collect personal data and if required, make the app delete/ forget the data.
    • The purpose of obtaining borrowers’ consent needs to be disclosed at each stage of interface with the borrowers.
    • Explicit consent of the borrower shall be taken before sharing personal information with any third party, except for cases where such sharing is required as per statutory or regulatory requirement.

Storage of data

• • • REs shall ensure that LSPs/DLAs engaged by them do not store personal information of borrowers except some basic minimal data (viz., name, address, contact details of the customer, etc.) that may be required to carry out their operations. Responsibility regarding data privacy and security of the customer’s personal information will be that of the RE.
    • REs shall ensure that clear policy guidelines regarding the storage of customer data including the type of data that can be stored, the length of time for which data can be stored, restrictions on the use of data, data destruction protocol, standards for handling security breach, etc., are put in place and also disclosed by DLAs of the REs and of the LSP engaged by the RE prominently on their website and the apps at all times.
    • REs shall ensure that no biometric data is stored/ collected in the systems associated with the DLA of REs/ their LSPs, unless allowed under extant statutory guidelines.
    • REs shall ensure that all data is stored only in servers located within India, while ensuring compliance with statutory obligations/ regulatory instructions.

Comprehensive privacy policy

• • • REs shall ensure that their DLAs and LSPs engaged by them have a comprehensive privacy policy compliant with applicable laws, associated regulations and RBI guidelines. For access and collection of personal information of borrowers, DLAs of REs/LSPs should make the comprehensive privacy policy available publicly.
    • Details of third parties (where applicable) allowed to collect personal information through the DLA shall also be disclosed in the privacy policy.

Technology standards REs shall ensure that they and the LSPs engaged by them comply with various technology standards/ requirements on cybersecurity stipulated by RBI and other agencies, or as may be specified from time to time, for undertaking digital lending.

C. Regulatory Framework

Reporting to Credit Information Companies (CICs)

• • As per the provisions of the Credit Information Companies (Regulation) Act, 2005; CIC Rules, 2006; CIC Regulations, 2006 and related guidelines issued by RBI from time to time, REs shall ensure that any lending done through their DLAs and/or DLAs of LSPs is reported to CICs irrespective of its nature/ tenor.
  • Extension of structured digital lending products by REs and/or LSPs engaged by REs over a merchant platform involving short term, unsecured/ secured credits or deferred payments, need to be reported to CICs by the REs. REs shall ensure that LSPs, if any, associated with such deferred payment credit products shall abide by the extant outsourcing guidelines issued by the Reserve Bank and be guided by these guidelines.

 Loss sharing arrangement in case of default:

As regards the industry practice of offering financial products involving contractual agreements such as First Loss Default Guarantee in which a third party guarantees to compensate up to a certain percentage of default in a loan portfolio of the RE, it is advised that REs shall adhere to the provisions of the Master Direction – Reserve Bank of India (Securitization of Standard Assets) Directions, 2021 dated September 24, 2021, especially, synthetic securitization contained in Para (6)(c).

Conclusion: A reference is invited to para 7 of the RBI Press Release “Recommendations of the Working Group on Digital Lending – Implementation” dated August 10, 2022. Detailed guidelines on recommendations of the Working Group accepted for immediate implementation are attached as Annex I to this circular.

Reiterated It is reiterated that outsourcing arrangements entered by Regulated Entities with a Lending Service Provider/ Digital Lending App does not diminish the REs’ obligations. And they shall continue to conform to the extant guidelines on outsourcing. The REs are advised to ensure that the LSPs engaged by them and the DLAs (either of the RE or of the LSP engaged by the RE) comply with the guidelines contained in this circular.

Applicable It is further advised that the instructions contained in this circular shall be applicable to the ‘existing customers availing fresh loans’. And to ‘new customers getting onboarded’, from the date of this circular. However, in order to ensure a smooth transition, REs shall be given time till November 30, 2022. To put in place adequate systems and processes to ensure that ‘existing digital loans’ are also in compliance with these guidelines in both letter and spirit.

Issued These directions are issued under sections 21, 35A and 56 of the Banking Regulation Act, 1949, sections 45JA, 45L and 45M of the Reserve Bank of India Act, 1934, sections 30A and 32 of the National Housing Bank Act, 1987, section 6 of the Factoring Regulation Act, 2011 and section 11 of the Credit Information Companies (Regulation) Act, 2005.

Important Link

Minority communities define by the Government of India, Ministry of Minority Affairs are Sikhs, Muslims, Christians, Zoroastrians, Buddhists and Jains. The Reserve Bank of India has periodically issued guidelines/instructions/directives to banks with regard to providing credit facilities to Minority Communities.

Credit Facilities to Minority Communities:

• In order to ensure that minority communities secure, in a fair and adequate measure, the benefits flowing from various Government sponsored schemes, Scheduled Commercial Banks (referred to as ‘banks’ hereafter) are advised to ensure smooth flow of bank credit to minority communities.
• Government of India has forwarded a list of 121 minority concentration districts having at least 25% minority population (Annexure I), excluding those States/UTs where minorities are in majority (Jammu & Kashmir, Punjab, Meghalaya, Mizoram, Nagaland and Lakshadweep).

Accordingly, banks are advised to specially monitor the credit flow to minorities in these 121 districts thereby, ensuring that the minority communities receive a fair and equitable portion of the credit within the overall target of the priority sector

• In terms of Reserve Bank’s Master Direction on Priority Sector Lending (PSL) dated September 04, 2020 (as updated from time to time), a target of 40 percent of Adjusted Net Bank Credit or Credit Equivalent amount of Off-Balance Sheet Exposures (OBE), whichever is higher, as on March 31 of the previous year, has been mandated for lending to the priority sector by domestic scheduled commercial banks and foreign banks;
  • for Small Finance Banks the target is 75% of their Adjusted Net Bank Credit (ANBC). Within this,
  • a sub-target of 11.5 per cent of ANBC or Credit Equivalent amount of OBE, whichever is higher,
  • as on March 31 of the previous year, has been mandated for FY: 2022-23 for lending to weaker sections which includes, among others, persons from minority communities.

Definition of Minority Communities

Minority communities define by the Government of India, Ministry of Minority Affairs are Sikhs, Muslims, Christians, Zoroastrians, Buddhists and Jains.

In the case of a partnership firm, if the majority of the partners belong to one or the other of the specified minority communities, advances granted to such partnership firms may be treated as advances granted to minority communities.

Further, if the majority beneficial ownership in a partnership firm belongs to the minority community, then such lending can be classified as advances to the specified communities. A company is a separate legal entity and hence advances granted to it cannot be classified as advances to the specified minority communities.

Creation of Special Cell and designating an exclusive Officer

set up a special cell having a Nodal Officer

Each bank should set up a special cell having a Nodal Officer holding the rank of Deputy General Manager/Assistant General Manager or any other similar rank, in order to ensure smooth flow of credit to minority communities.

minority concentration districts should have an officer

The Lead Bank in each of the minority concentration districts should have an officer who shall exclusively look after the problems regarding the credit flow to minority communities.

It shall be his/her responsibility to publicize among the minority communities various programmes of bank credit and also to prepare suitable schemes for their benefit in collaboration with branch managers.

Designated Officer

The designated officer should exclusively look after aspects relating to credit assistance to minority communities in the concerned districts.

The designated officer may be attached to the Lead Bank set up at the district level so as to receive necessary guidance from Lead District Manager, who will be senior enough and have adequate experience for liaising effectively with the other credit institutions and Government agencies and will also be working in close collaboration with the branch managers of other banks in the district.

The designated officer will also arrange group meetings for their guidance for formulation of schemes suitable for the members of the minority communities.

Banks concerned may ensure that the role assigned to the designated officer/s is effectively fulfilled.

The name, designation and office address of

(i) the officer-in-charge of the Special Cell at Head Office and

(ii) officer appointed by lead banks in the identified districts

to look after the problems of minority communities exclusively, should be furnished by banks to the National Commission for Minorities and updated periodically.

A copy of the relevant communication may also be furnished to The Chief General Manager, Financial Inclusion and Development Department, Reserve Bank of India, SBS Marg, Fort, Central Office, Mumbai 400001.

Role of Lead Banks

1. Lead Banks of the Minority Concentration Districts will have to exercise the pro-active role expected of them to ensure that the minority communities, particularly those who are poor and illiterate have access to bank credit for taking up productive activities.
2. The Lead Banks in the 121 identified districts having concentration of minority communities may involve the State Minority Commission/Finance Corporation in the extension work including creating awareness, identification of beneficiaries, preparation of viable projects, provision of backward and forward linkages such as supply of inputs/marketing, recovery etc.
3. They may collaborate with District Development Managers (DDMs) of NABARD/NGOs/Voluntary Organizations in reaching the poor through Self Help Groups (SHGs).
4. The Convenor banks of the District Consultative Committees (DCCs), District Level Review Committees (DLRCs) and the State Level Bankers Committees (SLBCs) should ensure that steps taken to facilitate the flow of credit to the minority communities and the progress made in this regard are reviewed regularly at their meetings.
5. Chairman/Managing Director of State Minority Commissions/Boards or the State Minorities Financial Corporations or their representatives may be invited to attend the meetings of DLRCs/SLBCs.

Advances under DRI Scheme

Banks may route loans under the DRI scheme through State Minority Finance/Development Corporation on the same terms and conditions as are applicable to loans routed through SC/ST Development Corporations, subject to the beneficiaries of the Corporations meeting the eligibility criteria and other terms and conditions prescribed under the scheme.

Banks may ensure proper maintenance of the register to evolve timely sanction and disbursement of loan applications.

Monitoring

• Data on credit extended to members of minority communities should be furnished to Reserve Bank of India and to the Government of India, Ministry of Finance and Ministry of Minority Affairs, on half yearly basis as at the end of March and September every year within one month from the end of each half year (Annexure II).
• The Convenor banks of the District Consultative Committees in the identified minority concentrated districts should furnish the data on priority sector advances granted by banks to specified minority communities compiled by them in the prescribed format (Annexure III) for the district under their lead responsibility to the concerned Regional Offices of RBl within one month from the close of the relative quarter.
• The progress made in regard to the flow of credit to the minority communities should be reviewed regularly at the meetings of the District Consultative Committees and the State Level Bankers Committees.
• The Lead Banks in the identified minority concentrated districts should furnish the relevant extracts of the agenda notes and the minutes of the meetings of the DCCs and of the respective SLBCs to the Union Ministry of Finance and to the Ministry of Minority Affairs on a quarterly basis for their use.

Training

1. With a view to ensuring that the bank staff and officers have proper perspective and appreciation of the various programmes for welfare of minorities, necessary orientation may be provided to officials and other staff.
   • For this purpose, banks should include suitable lecture sessions as part of all relevant training programmes like induction courses, programmes on rural lending, financing of priority sectors, poverty alleviation programmes, etc.
2. The Lead Banks in the identified districts may sensitize and motivate the staff posted to identified districts through proper training to assist the minority communities under various credit schemes.
3. The Lead Banks may organize sensitization workshops for bank officials regarding micro credit/lending to SHGs with the help of DDMs of NABARD.
4. The Lead Banks functioning in the identified districts should organize Entrepreneur Development Programmes so that the members of the minority communities in these areas are enabled to derive the benefit of various programmes being financed by the banks.
5. Depending upon the major vocation and type of activity undertaken by large sections of the people in the districts, suitable programmes may be organized in co-operation with State Governments, Industries Department, District Industries Centre, SIDBI, State Technical Consultancy Organization, Khadi and Village Industries Commission and other voluntary organizations which are fully equipped to impart such training and orientation.
6. The duration of the programme, the course content, the faculty support to be selected etc. should be decided by each Lead Bank taking into account the prevailing conditions, need and existing skills as well as aptitude of the people in the district.

Publicity

Banks should create publicity through various means about the anti-poverty programmes of the Government where there is large concentration of minority communities and particularly in the districts listed in the Annexure I.

The lead banks in the identified districts may create awareness among minority communities regarding credit facilities available from banks through appropriate measures which may include publicity through

(i) print media i.e., distribution of pamphlets in local languages, advertisements/articles in newspapers etc.

(ii) TV channels – DD/local channels,

(iii) participation/setting up of stalls in the Melas/fairs organized during the religious/festive occasions by the minority communities.

National Minorities Development and Finance Corporation (NMDFC)

NMDFC promotes economic and developmental activities for the backward sections amongst the minorities. NMDFC works as an apex body and channelises its funds to the beneficiaries through the State Minority Finance Corporation of each State/Union Territory.

Banks may implement the schemes evolved by NMDFC. While extending finance, banks should bear in mind the guidelines/instructions issued from time to time on priority sector advances.

Prime Minister’s New 15 Point Programme for the Welfare of Minorities

An important objective of the above Programme is to ensure that an appropriate percentage of the priority sector lending is targeted for the minority communities and that the benefits of various government sponsored schemes reach the under-privileged, which includes the disadvantaged sections of the minority communities.

The New Programme is to be implemented by the Central Ministries/Departments concerned through State Governments/Union Territories and envisages location of certain proportion of development projects in minority concentration districts.

Accordingly, all scheduled commercial banks are required to ensure that within the overall target for priority sector lending and the sub-target of 11.5 per cent for the weaker sections for FY: 2022-23, sufficient care is taken to ensure that minority communities also receive an equitable portion of the credit.

Lead Banks have been advised to keep this requirement in view while preparing District Credit Plans.

Credit Flow to Minority Communities

List of Circulars consolidated in the Master Circular

RBI/2022-23/99

Master Circular on Credit Facilities to Minority Communities

The Reserve Bank of India has periodically issued guidelines/instructions/directives to banks with regard to providing credit facilities to Minority Communities. The Master Circular enclosed consolidates the circulars issued by Reserve Bank on the subject till date, as listed in the Appendix.

Annexure III

Statement showing Priority Sector Advances granted to the members of specified minority
communities vis-à-vis overall Priority Sector Advances (in the Identified Districts) for the quarter ended………… (Vide paragraph 6.2)

Name of the District .

Note:
1. Number of accounts in actual numbers
2. Amount outstanding in crores of Rupees

Master Circular on Credit Facilities to Minority Communities

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