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In May 2025, the Reserve Bank of India (RBI) issued the , 2025 (directions), replacing the 2022 guidelines on digital lending (2022 guidelines). The directions regulate innovative financial technology to strengthen consumer protection and regulatory oversight in the digital lending sector. They apply to all regulated entities (RE), including commercial banks, non-banking financial companies, all-India financial institutions and lending service providers (LSP).

Digital lending fraud has increased significantly in recent years. In 2023, the government banned 94 loan apps with suspected links to China due to concerns over money laundering, privacy breaches and predatory practices. The 2022 guidelines were unable to regulate tech-driven digital lending ecosystems. The directions aim to provide governance for REs, LSPs and borrowers.

The directions will establish a centralised information management system, or CIMS, to which REs must report all digital lending applications (DLA) by 15 June 2025. DLAs allow loans to be applied for and granted online. REs may process them directly or through LSPs, intermediaries between borrowers and lenders. The CIMS will be a depository for all DLAs in India.

REs are mandated to carry out detailed due diligence before engaging LSPs. Contracts between REs and LSPs must define their roles and responsibilities, and REs remain fully liable for any actions undertaken by LSPs on their behalf.

LSPs must maintain comprehensive digital interfaces from 1 November 2025, displaying all digital loan offers from their partnered lenders. The ranking of these loan offers must be based on a publicly disclosed standard, ensuring that the borrowers make informed comparisons based on consistent factors. Such platforms will help borrowers to undertake thorough analysis before taking out loans.

Before loans are executed, borrowers must be given key fact statements, summarising their terms. All digitally signed documents have to be sent to borrowers through verified communication channels. REs must maintain all information about their digital lending products, associated LSPs, grievance redressal mechanisms and links to the RBI’s complaint portals on their websites.

REs must ensure that borrower data is collected only after explicit consent and on a strictly necessary basis. Access to sensitive data has to be restricted. Borrowers have the right to control the use of their data, revoke consent and request deletion, with full disclosure at each stage.

The directions mandate that all drawdowns provided by REs must be paid directly into borrowers’ bank accounts. Drawdowns or repayments to another account, including that of an LSP, are prohibited. The flow of funds between borrowers and REs should not be handled, directly or indirectly, by any third party.

A default loss guarantee (DLG) is a contractual arrangement by which a third party, such as an LSP, compensates an RE for loan defaults up to a specified percentage of a loan. Such a guarantee is capped at 5% of the total amount paid in a loan portfolio. REs must publicly disclose all DLG-backed portfolios on their websites to ensure transparency.

A concern about the directions is the lack of relief for data breaches. Although the directions deal with data collection, consent, storage and disclosure, they are silent about the consequences of data leakage or theft. The Digital Personal Data Protection Rules, 2025 require timely notifications to those affected with the effects mitigated. The lack of similar provisions in the directions leaves borrowers vulnerable.

Comparing the CIMS and AnaCredit, a European Central Bank framework collecting detailed, harmonised information on bank loans from credit institutions, the latter demands detailed and validated data. AnaCredit requires monthly reporting, giving greater transparency. In contrast, the CIMS relies on data submitted by REs, with the RBI taking no steps to verify their accuracy. This may undermine borrowers’ trust in the regulator.

The directions nonetheless usher in a more inclusive, transparent, accountable and consumer-friendly digital lending system. They address past concerns and lay strong foundations for the future growth of digital lending. As REs adapt to the new norms, borrowers will enjoy a more competitive, streamlined and transparent credit experience.

Srishti Bansal and Sukhmani Kaur are associates at SNG & Partners