RBI Guidelines on Personal Loan and Digital Lending

Personal loans have recently become the most convenient source of funds as it is available instantly during sudden financial requirement. And the rapid development in cloud computing, artificial intelligence, and blockchain, has given rise to digital lending platforms that readily offer personal loans through web platforms or mobile applications. Recently, the Reserve Bank of India (RBI) introduced a framework to regulate digital lending. Moreover, the RBI has made it mandatory in order to check unethical business conduct, exorbitant interest rates, and excessive engagement of third parties in digital lending transactions.

So read this article further to know the new guidelines introduced by RBI on personal loans and digital lending.

Before going deeper, let’s have a look at what a Personal Loan is, the eligibility criteria, and the documents required for a deeper understanding.

Personal Loan

Banks and NBFCs offer personal loans (also known as unsecured loans) depending on your income and creditworthiness. You can avail of a personal loan for various reasons such as a sudden medical emergency, expanding your business, renovating your home, traveling, wedding, etc. Since it is an unsecured loan, you need not pledge your collateral when applying for it. Moreover, you can also use a digital lending platform like Buddy Loan if you are looking for a personal loan. Buddy Loan is one of the largest loan aggregators that help you get personal loans at affordable rates.

Eligibility Criteria For Personal Loan

The table below shows the personal loan eligibility criteria for both salaried and self-employed.

Sl.No.	Particulars	Description
1	Nationality	Indian
2	Age	21 to 60
3	Employment Status	Employed or Self-Employed
4	Minimum Income	INR 20,000 per month
5	Work Experience	Min 1 year completed
6	Credit Score	Above 750

Documents Required For a Personal Loan

For Salaried Employee:

Sl. No.	Particulars	Documents required
1	Proof of Identity	Aadhar Card, PAN Card, Driving License, Passport
2	Proof of Address	Electricity Bill, Water Bill, Passport
3	Proof of Income	Salaried: Bank statement for the past six months
4	Work experience	Employment Certificate for a minimum of 1-year experience

For Self-Employed:

Sl. No.	Particulars	Documents required
1	Proof of Identity	Aadhar Card, PAN Card, Driving License, Passport
2	Proof of Address	Aadhar Card, Electricity Bill, Water Bill, Passport
3	Proof of Income	Bank statement for the past three months Salary Slips of three months Income Tax Returns for the last three years Balance Sheet and Profit & Loss Statements for the last three years audited by a CA.

Terms and Conditions For Personal Loan

Usage and Security

One of the main benefits of getting a personal loan are that you can use it for a variety of reasons. Unlike other loans such as auto loans or education loans, personal loans do not have any set purpose. Additionally, you need not submit any collateral or security therefore you must be careful when applying for the loan and not fall for fraudulent claims.

Eligibility Criteria

The eligibility criteria vary from lender to lender. So you must check with your lender to know if you meet the required criteria.  Here are some of the common factors that determine your eligibility:

• Age of the Applicant: If you are planning to apply for a personal loan, you must be between the ages of 21 and 57.
• The Income of the Borrower: Lenders offer personal loans to applicants who are salaried as the risk is higher. Therefore, you must have a minimum income of Rs 18,000 per month. Another condition that lenders impose is that the income must be deposited in the borrower’s bank account directly.
• Credit Scores: Your credit score shows your creditworthiness. If you have a high credit score, your chances of getting a personal loan at low rates of interest are also high. Therefore, lenders expect borrowers to have a credit score of above 750 and if you have a low credit score, you will have a hard time getting your loan approval as lenders will not trust your repayment capacity.

Document Submission

You have to provide correct documents and ensure that you do not have too many loans running at the same time.

Loan Repayment

Once you have availed of a personal loan, it is your duty to repay the loan on time. So make sure you do not miss out on any payments to avoid harming your credit score.

RBI Rules for Personal Loans

The RBI has issued certain guidelines to lenders so that the process is beneficial to both the lender and the borrower. Here are a few important points from RBI guidelines on a personal loan.

• All loan application forms must include required information indicating the fees and payments. This will help borrowers to compare with other banks and make informed decisions.
• The verification process must be over within a certain period of time. And if the lender requires any additional information or documentation, the applicant must be contacted immediately without any delay.
• If the lender rejects the loan applications for amounts lesser than Rs. 2 lakhs, they must convey the reason for loan rejection in writing.
• Disburse the loan amount on time and if there are any changes in terms and conditions, the applicant must be aware of it.
• If lenders want to recall/cancel/request faster repayment, they must give adequate notice to the borrowers.
• Read the loan agreement carefully before signing.
• No discrimination of borrowers by caste, religion, sex, etc.
• Lenders must not harass the borrower when recovering the loan amount.

RBI Guidelines For Digital Lenders

Here’s how the RBI guidelines on digital lending focus on protecting borrowers:

1. The digital lending apps must not access any resources such as files and media, contact lists, call logs, telephone functions, etc from your mobile phone. The apps can have only one-time access to a camera, microphone, and location, with the explicit consent of the borrower for onboarding/ KYC requirements.
2. The digital lending apps must inform the borrowers about the storage of data which includes the type of data, the time for which data can be stored, restrictions on the use of data, data destruction protocol, standards for handling security breaches, etc. The website must include this information on their website and the application at all times.
3. A Key Fact Statement (KFS) must be sent to the borrower before executing the contract in a standard format for all digital lending products when disbursing the loans using digital apps. The Key Fact Statement must include the cost of all digital loans which the borrower must be aware of.
4. The penal interest levied on the borrower must be based on the outstanding amount of the loan. Further, the rate of penal interest must be disclosed upfront on annual basis to the borrower in the Key Fact Statement.
5. If there are any fees or charges payable to the lending service providers, they must be paid only by the regulated entities and borrowers must not be charged for this.
6. The Key Fact Statement(KFS) must have the details of the annual percentage rate, the recovery mechanism, details of the grievance redressal officer to deal with matters related to digital lending/FinTech-related, and the cooling-off/ look-up period. The cooling-off/look-up period is the time given to the borrower for exiting digital loans when a borrower decides not to continue with the loan.
7. The charges or fees that are not included in the Key Fact Statement will not be chargeable to borrowers at any stage during the entire loan tenure.
8. Once the loan contract or transaction is successful, the information must be sent to the borrowers on their verified email/SMS. The information must also be sent on the letterhead of the bank and must have a Key Fact Statement (KFS), a summary of the loan product, a sanction letter, terms and conditions, account statements, privacy policies of the Lending Service Providers (LSPs) with respect to borrowers data, etc.
9. Any information related to product features, loan limit, cost, etc., must be informed to the borrowers at the time of the sign-up/onboarding stage.
10. The banks and NBFCs must provide a list of their digital lending apps and lending service providers on their websites.
11. The website of the banks NBFCs, lending service providers, and digital lending apps must include the details about Nodal Grievance Redressal Officer and the Key Fact Statement (KFS).
12. Digital lending apps and websites must give the facility for borrowers to file their complaints.
13. If the complaint filed by the borrower is not resolved in 30 days, then he/she can file a complaint on the Complaint Management System (CMS) portal under the Reserve Bank-Integrated Ombudsman Scheme (RB-IOS). If the entities are currently not covered under RB-IOS, a complaint may be filed as per the grievance redressal mechanism prescribed by the Reserve Bank of India.
14. The banks and NBFCs must get the profile details of the borrowers which include age, occupation, income, etc., before offering any loan from their Digital Lending Apps or through Lending Service Providers, to assess the borrower’s creditworthiness.
15. Without any explicit consent of the borrower, there will be no automatic increase in the credit limit.
16. During the cooling-off/look-up period, the borrower must be given options to exit the digital loan by paying the principal and the APR( Annual Percentage Rate) without any penalty. Usually, the cooling-off period is determined by the Board members of the bank or NBFC and the period must not be less than three days for loans having a tenor of more than seven days and one day for a tenor lesser than seven days. For borrowers who wish to continue with the loan even after the look-up period, banks and NBFC must allow pre-payment as per extant RBI guidelines.
17. The borrower must be given the option to give or deny consent for using specific data, restrict disclosure to third parties, data retention, and make the app delete/ forget the data.
18. Before sharing any personal information with a third party, the lenders must take explicit consent from the borrower except for cases where sharing of information is required as per statutory or regulatory requirements.
19. The Digital Lending Apps must not store any biometric data or collect it in the systems associated with banks / Lending Service Providers unless it is allowed under extant statutory guidelines.
20. Banks and NBFCs must ensure that any lending that is done through their Digital Lending Apps and/or Digital Lending Apps of Lending Service Providers must be reported to Credit Information Companies (such as CIBIL) irrespective of its nature/ tenor.
21. Banks and NBFCs must ensure that all loan servicing, repayment, etc., must be done by the borrower directly in their bank account without any pass-through account/ account of any third party. The loan disbursements must always be made into the borrower’s bank account unless it is under a statutory or regulatory mandate (of RBI or any other regulator).
22. Lenders must not disburse the loan amount to any third-party account, including the accounts of Lending Service Providers and their Digital Lending Apps, except as given in these guidelines.

Personal Loan Foreclosure and Other Charges

If you choose a longer repayment period, your EMI will be less but the interest that you pay overtime will be higher than the interest that you pay during a shorter loan repayment tenure. Personal loan foreclosure is when you decide to clear your loan before the end of your loan tenure. However, you can foreclose your loan only after you pay a certain number of EMIs.

Lenders include charges like interest EMI or cheque bounce charges, part-payment charges, processing charges, etc.  So you must be aware of all these charges before availing of a personal loan.

Also Read: RBI’s Latest Report Merged Public Sector Banks Riskier Than Unmerged Ones

In Conclusion

With the increase in demand for personal loans and digital lending platforms, you must be well aware of all the terms and conditions and the updated regulations of RBI to have an informed decision. And if you are looking for the best platform to get a personal loan, Buddy Loan is the right choice. It is one of the largest loan aggregators that help you get personal loans at affordable rates from top trusted lenders.

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