Reserve Bank of India (Digital Lending) Directions, 2025

What it does

The Reserve Bank of India (Digital Lending) Directions, 2025, reference DOR.STR.REC.19/21.07.001/2025-26, were issued by the Department of Regulation and are dated 8 May 2025. They put the rules on digital lending in one instrument. According to the site's note on digital lending, the Directions deal with the key fact statement given to a borrower, the cooling off right, the route by which fees are charged, the filing of digital lending applications in a directory, and the default loss guarantee.

The default loss guarantee is the arrangement under which a lending service provider or another party covers part of the lender's losses on a portfolio. The commercial terms are unchanged in substance from the earlier guidelines: cover is capped at five per cent of what the portfolio disbursed, it is held as cash with the lender, a fixed deposit with a scheduled commercial bank under the lender's lien, or a bank guarantee in the lender's favour, and the lender invokes it within 120 days of a loan going overdue. What changed is that the guarantee is now read within the same instrument as the other consumer protections, so an arrangement that is sound on the cap and wrong on the fees fails under one document.

Who it binds

The regulated entities the Directions name: commercial banks, primary urban co-operative banks, state and central co-operative banks, non-banking financial companies including housing finance companies, and all India financial institutions. A lending service provider is not a regulated entity and is not directly bound. The obligation falls on the lender, which must carry out enhanced due diligence on the provider before it signs: its technical capability, the strength of its data privacy policy and storage, its conduct towards borrowers in the past, and its ability to comply with the law that applies to it.

What moved out of it

The Directions supersede three earlier circulars: the fair practices circular on digital lending platforms of 24 June 2020, the digital lending guidelines of 2 September 2022 and the default loss guarantee guidelines of 8 June 2023. A compliance file that still cites the 2022 guidelines by paragraph is citing a superseded text.

What has changed, and when

The Directions are dated 8 May 2025 and replace the three circulars. They are issued under a list of powers that includes sections 21 and 35A of the Banking Regulation Act, 1949, sections 45JA, 45L and 45M of the Reserve Bank of India Act, 1934, section 30A 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. A direction under section 35A binds a bank as a direction, so a breach is a regulatory default in its own right and not guidance not followed.

What turns on it in practice

For a lender that works with a technology partner, the Directions turn on who does what. The lender cannot outsource the responsibility, and a contract with the provider has to reflect the lender's duties on disclosure, grievance handling and data. The site's note on digital lending describes the outsourcing as one that is not an escape: the provider's conduct is the lender's responsibility.

For a platform that offers a first loss guarantee, the cap and the form of cover decide whether the arrangement is permitted. A guarantee above five per cent of the disbursed portfolio, or one that is not held in the permitted form, is outside the Directions, and the fix is to restructure before the portfolio is built and not after.

The firm's work in financial technology and payments reads the Directions with the Reserve Bank of India Act, 1934 and the Reserve Bank's other directions of 2025 on authentication of digital payments, resolution of stressed assets and treatment of wilful defaulters, which are related instruments on this site.