By S&S Co. Advocates & Solicitors · Published 20 September 2026 · Informational content, not legal advice — see our disclaimer
One Consolidated Master Direction
RBI issued the Reserve Bank of India (Digital Lending) Directions, 2025 on 8 May 2025, consolidating the 2022 Digital Lending Guidelines and the 2023 Default Loss Guarantee guidelines into a single binding master direction — regulated entities operating digital lending should now work from this consolidated text rather than treating the earlier, separate guidelines as still independently governing.
Reporting Every Digital Lending App
Regulated entities must report all their Digital Lending Apps on RBI's Centralised Information Management System, with existing DLAs required to be reported by 15 June 2025 and the Chief Compliance Officer required to certify accuracy of that reporting.
Direct Disbursal and Repayment — No Pooling
Loan disbursal must flow directly from the lender to the borrower's bank account, and repayments directly from borrower to lender — funds cannot be routed through an LSP's or any third party's pooling account. This direct-flow requirement is central to the framework's design, aimed at eliminating the intermediary control over borrower funds that characterised earlier, less regulated digital lending arrangements.
The Cooling-Off Period
Borrowers get a mandatory, board-approved, penalty-free cooling-off or look-up period, of at least 1 day, to exit a digital loan by repaying only principal plus proportionate APR, with no prepayment penalty — a real, usable right borrowers should be made aware of, not a technical entitlement buried in fine print.
Default Loss Guarantee Caps
Default Loss Guarantee arrangements between LSPs and regulated entities are capped at 5% of the disbursed loan portfolio and must be invoked within 120 days of default per a board-approved policy. LSPs distributing loans from multiple lenders on one platform must give borrowers an unbiased, transparent comparison of all available loan offers — no steering via dark patterns or hidden preferential display of one lender's product over another's.
Frequently Asked Questions
Can a Lending Service Provider hold borrower repayments in its own account?
No. Loan disbursal must flow directly from the lender to the borrower's bank account, and repayments directly from borrower to lender — funds cannot be routed through an LSP's or any third party's pooling account.
What is the cooling-off period for a digital loan?
A mandatory, board-approved, penalty-free period of at least 1 day, during which the borrower can exit the loan by repaying only principal plus proportionate APR, with no prepayment penalty.
Is there a cap on Default Loss Guarantee arrangements?
Yes. DLG arrangements between LSPs and regulated entities are capped at 5% of the disbursed loan portfolio and must be invoked within 120 days of default under a board-approved policy.
References & Further Reading
This article references the following statutory provisions. Readers should always verify current rules, fees and timelines against the applicable statute and rules as amended, since these are revised from time to time.
- Reserve Bank of India (Digital Lending) Directions, 2025, issued 8 May 2025.