The banking system has been expanded significantly in recent years thanks to accelerated digitization. The high internet coverage, combined with the massive use of smartphones, has transformed the banking landscape, spanning credit-seekers from all walks of life, regardless of their financial standing. This also presents viable business opportunities in the digital lending domain, per se. So, what does it take to be a digital lender in India? If that question concerns you, the answer is right here.
What is Digital Lending, and is it Any Different from its Traditional Loan Company?
Think of digital lending as a digitized version of a traditional loan company, which assesses credit profile, provides loan options with flexible tenures, complies with RBI norms, and follows ombudsman regulations. While both fall into the same trajectory, the difference lies in how they operate and how much loan they can grant.
The digital lenders heavily rely on technology, combining AI, ML, and API integration, to assess risks tied to debtors and conduct background checks. Even the disbursement and repayment are digitized, which is a rarity with traditional lenders.
Coming to the loaning threshold, traditional banks excel in this area. They can, with specific RBI permits, disburse loans significantly higher than most digital lenders. Below is the tabulated comparison of both:
| Feature | Traditional Lending | Digital Lending |
| Sourcing | Branch visits / Agents | Mobile Apps / Web Portals |
| Documentation | Physical / Photocopies | Paperless (e-KYC / Digilocker) |
| Decisioning | Human Credit Manager | AI/ML Algorithms |
| Customer Base | Prime / Salaried | Prime, Sub-prime, and NTC |
Do’s and Dont’ For Digital Lenders in India
Just like traditional loan companies, digital lenders face high RBI[1] scrutiny and regulations, some of which include:
- A digital lender with an NBFC-P2P license cannot grant a loan exceeding ₹10 lakh per borrower across all platforms.
- They must maintain an operational capital, legally termed as Net Owned Fund, of ₹10 crore at all times.
- If a digital lender is a Microfinance company, they cannot lend to households with a yearly income surpassing ₹3 lakh. This is important to ensure finance for the unbanked part of the population.
- A loan increase without the debtor’s consent is prohibited.
- Lending 15-25% of the capital base to one individual or group is not permissible.
- Prohibition on granting loans to borrowers with total EMIs exceeding 50% of their verified income.
Legal Routes to Becoming a Regulated Digital Lender in India
There are two legal routes to becoming a regulated digital lender in India. The difference between the two lies in whether you want to have an in-house technological infrastructure or wish to join hands with an RBI-regulated Bank or NBFC. Here’s the breakdown of both paths.
Route 1: The Licensed Entity (Become an NBFC)
A: Company Incorporation: Register a Public or Private Limited Company under the Companies Act, 2013.
B: Capital Infusion: Raise a minimum Net Owned Fund (NOF) of ₹10 crore (as per 2026 entry norms).
C: RBI Application: Apply for a Certificate of Registration (CoR) via the RBI’s COSMOS/CIMS portal.
D: Tech Infrastructure: Build a platform compliant with the IT Act, ensuring all data resides within India.
Route 2: The Technology Partner (Lending Service Provider)
A: Product Development: Create a Digital Lending App (DLA).
B: Strategic Partnership: Sign an MoU with an existing RBI-regulated Bank or NBFC.
C: Due Diligence: Pass the “Enhanced Due Diligence” audit conducted by your partner NBFC.
D: RBI White-listing: Ensure your app is listed on your partner’s website and reported to the RBI CIMS portal.
Documents to Apply for RBI’s Approval
Here is the document matrix you must follow to apply for the RBI’s approval
| Category | Documents Required |
| Corporate | Certificate of Incorporation, MoA & AoA, Board Resolution for lending. |
| Financial | Statutory Auditor’s certificate of NOF, Banker’s Report on promoters. |
| Management | Net Worth certificates and CIBIL reports of all Directors/Shareholders. |
| Technical | V-KYC process flow, Data Privacy Policy, Cybersecurity Audit report. |
| Legal | For LSPs: Partnership Agreement/MoU with the Regulated Entity (RE). |
Digital lending has changed the scene of the banking sector, ensuring finances for those who need it the most. Given the current and projected demand for credits nationwide, becoming a regulated digital lender can offer exciting growth opportunities. We hope you have found this piece of information helpful, and it will assist you in kick-starting a compliant venture seamlessly.
If you seek an expert’s oversight or comprehensive assistance, Advisou won’t disappoint. As India’s most trusted licensing partner, Advisou strongly believes in simplifying business processes and regulations for its esteemed clients. From paperwork to compliance evaluation, experts at Advisou do everything with utmost precision, so that you get the result you desire. Contact us now and avoid the hassle of navigating RBI regulations.
Also Read: How to Start a Lending Business in India?
Frequently Asked Questions
Q1: Can an LSP (Fintech) charge a “Platform Fee” directly to the borrower?
No. Under current RBI rules, all fees must be paid by the RE (Bank/NBFC) to the LSP. The borrower should not see any separate bill or payment request from the fintech app; all costs must be bundled into the loan’s Annual Percentage Rate (APR).
Q2: What is the “50-50 Test” for NBFC registration?
To qualify as an NBFC, a company must pass the Financial Activity Test: over 50% of its total assets must be financial assets, and over 50% of its gross income must be derived from those assets.
Q3: Is “Click-wrap” (ticking a box) sufficient for loan agreements?
While common, the RBI now prefers Aadhaar e-Sign or Digital Signatures for the actual loan contract. If using click-wrap, you must maintain a “Secure Audit Trail” that captures timestamps, IP addresses, and the exact consent language shown to the user.
Q4: Can we increase a user’s loan limit automatically if they pay on time?
No. “Unsolicited Limit Enhancement” is prohibited. You must obtain explicit, fresh consent (usually via OTP or a digital signature) before increasing a borrower’s credit limit.
Q5: Are we allowed to use AI for “automated rejection” of loans?
Yes, but you must be able to provide the “Logic of Rejection” if a borrower or the RBI asks. Your AI/ML models must be auditable and free from discriminatory bias.
