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After a long wait, the Reserve Bank of India (RBI) on Wednesday released the digital lending guidelines based on the principle that lending business can be carried out only by entities that are either regulated by the central bank or entities permitted to do so under any other law.

The central bank has classified the universe of digital lenders into three groups – entities regulated by the RBI and permitted to carry out lending business; entities authorised to carry out lending as per other statutory/regulatory provisions but not regulated by RBI; and entities lending outside the purview of any statutory/ regulatory provisions.

The regulatory framework brought in by the RBI is directed at the first category, essentially entities that are regulated by the central bank and the lending service providers (LSPs) engaged by them.

“As regards entities falling in the second category, the respective regulator/ controlling authority may consider formulating or enacting appropriate rules/regulations on digital lending based on the recommendations of the working group of digital lenders," the RBI said.

“For the entities in the third category, the working group has suggested specific legislative and institutional interventions for consideration by the Central Government to curb the illegitimate lending activity being carried out by such entities," it said.

For the regulated entities, RBI has said all loan disbursals and repayments are required to be executed only between the bank accounts of borrower and the RE without any pass through/ pool account of the LSP or any third party.

Further, any fees, charges, etc., payable to LSPs in the credit intermediation process has to be paid directly by the regulated entity and not by the borrower. Also, the all-inclusive cost of digital loans in the form of Annual Percentage Rate (APR) is required to be disclosed to the borrowers. The central bank has said that there cannot be an automatic increase in the credit limit without explicit consent of the borrower.

On the data privacy front, RBI has said the data collected by digital lending apps (DLAs) has to be need based, they should have clear audit trails and should be only done with prior explicit consent of the borrower.

Further, these apps have to provide an option to borrowers to accept or deny consent for use of specific data, including the option to revoke previously granted consent, besides the option to delete the data collected from borrowers by the DLAs/ LSPs.

The central bank has also mandated that any lending sourced through DLAs have to be reported to Credit Information Companies (CICs) by regulated entities irrespective of its nature or tenor. “All new digital lending products extended by regulated entities over merchant platforms involving short term credit or deferred payments are required to be reported to CICs by the regulated entities," the RBI said.

This is particularly important given a number of 'buy now, pay later' players were not reporting the loans they were offering to CICs.

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India's retail inflation likely eased in July due to a fall in food and fuel prices yet stayed well above the Reserve Bank of India's upper tolerance limit for a seventh consecutive month, a Reuters poll found.

Food prices, which account for nearly half of the consumer price index basket, softened last month. But the bulk of the slowdown came from an easing in international prices and the lagged effect of government interventions to reduce import duties and restrictions on wheat exports.

The near-term inflation outlook remains highly uncertain as the uneven nature of this year's monsoon and a weak rupee currency may dull the effectiveness of those government efforts to tame consumer price rises.

The Aug. 2-9 Reuters poll of 48 economists showed inflation, as measured by the consumer price index (CPI) likely fell to an annual 6.78% in July, a five-month low, from 7.01% in June.

Forecasts ranged from 6.40% to 7.10% for the data, which is due at 1200 GMT on Aug. 12.

Food and energy prices are essentially easing quite marginally, even as the rupee hit historic lows in recent weeks," said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics.

"It (inflation) could remain sticky over the next few months, but it's not going to be much worse than where we are at currently."

Wholesale price inflation was seen moderating to 14.20% in July from 15.18% in June, the poll showed.

While the lagged effect from a cut in fuel taxes helped restrain price pressures somewhat, consumer price rises are expected to persist at a strong pace in the months ahead.

India's central bank, a relative laggard in the global tightening cycle, raised interest rates on Friday by 50 basis points to 5.40%, taking it above where it was before the pandemic, with more rate rises expected to come.

Governor Shaktikanta Das has warned that persistently elevated cost of living conditions could translate into higher wages and inflation, which is unlikely to fall within the top end of the mandated target band until December.

That is roughly in line with a separate Reuters poll that has inflation staying above target until early next year.

"We think the RBI will continue to hike rates over the next few months. We expect at least a 25bp hike in September, followed by another 25bp hike in December 2022," said Mitul Kotecha, head of emerging markets strategy at TD Securities, noting risks cited by Das including inflation remaining above the target band for a few more months.