Hello everyone, 

Welcome to the 153rd edition of The Pattern, where we analyze RBI's latest moves that reveal a fascinating pattern in how the regulator is approaching different lending channels. 

The digital lending blueprint 

Just yesterday, RBI dropped its comprehensive Digital Lending Directions 2025 , a regulatory framework that will fundamentally reshape how lending happens in the digital sphere. The 30-page directive covers everything from how lending apps must display loan offers to where customer data can be stored. 

While we'll do a deep dive on this next week, a few elements stand out immediately: 

• LSPs (Lending Service Providers) must now display all loan offers from multiple regulated entities, creating a true comparison marketplace for borrowers 

• All lending apps must be reported to RBI by June 15, creating the first official directory of legitimate lending applications 

• Customer data must be stored in India, with any overseas processing requiring data to return within 24 hours 

• The DLG (Default Loss Guarantee) remains capped at 5% of the disbursed portfolio 

Looking deeper into the 30-page directive, several profound changes will reshape the digital lending landscape: 

The directive's most impactful requirements arrive in stages:  

> By June 15, every lending app must register in RBI's directory with compliance certification from the top.  

> By November 1, lending platforms must display all lender offers transparently without bias.  

> Meanwhile, all customer data must stay in India (with 24-hour return if processed abroad), and LSPs face intensified scrutiny of their technical and privacy capabilities.  

These are market-defining shifts that will separate serious players from the rest. The message is clear: The RBI is creating guardrails, not roadblocks. It's legitimizing digital lending while ensuring consumers are protected, essentially saying, "We recognize this channel is here to stay, but it needs to evolve responsibly." 

Now, about those gold loans... 

This brings us to an interesting parallel. Just as RBI is creating a framework for digital lending, it's also quietly reshaping the gold loan landscape with draft guidelines issued last month. 

With gold prices at historic highs (hovering around ₹1,05,000 per 10 grams for 24k gold), gold loans have exploded as a credit category. The combined portfolio of banks and NBFCs grew by over 50% in FY25, with banks alone seeing growth of 104%, according to ET. 

The timing is unlikely to be coincidental. Just as digital lending's rapid growth prompted regulatory scrutiny, gold loans' meteoric rise has caught the regulator's attention. 

The gold standard changes 

What exactly is the RBI proposing? The central bank's April draft aims to "h armonise the regulatory framework across regulated entities and address differences in lending practices ," says Malvika Bhotika, director at Crisil. 

But let's translate the regulatory speak: The RBI is concerned that lenders might be getting a bit too creative with how they calculate loan-to-value (LTV) ratios and handle bullet loan renewals. 

For the uninitiated, LTV is simply how much a lender will give you against the value of your gold. Currently, NBFCs typically offer 65-68% LTV at disbursement. The new rules might force them to reduce this to 55-60% to account for accrued interest and ensure compliance. This will mean lower loan disbursement for the same value of gold jewelry. 

Additionally, renewals or top-ups on bullet repayment loans would require repayment of the entire accrued interest first, a significant change from current practices where many NBFCs allow seamless rollovers. 

The hidden pattern in the two regulatory initiatives 

Looking at these two regulatory initiatives side by side reveals RBI's consistent approach: 

1. Identify fast-growing segments : Digital lending and gold loans are among the fastest-growing credit categories 

2. Focus on transparency : In both cases, RBI is demanding clearer disclosure to borrowers 

3. Standardize practices : Creating uniform rules for how loans are structured and managed 

4. Protect borrower interests : From preventing debt traps to ensuring fair disclosures 

It's not about restricting growth but ensuring it happens responsibly. Excellent regulation = mainstreaming of the channel. It always helps. 

Impact on lenders and borrowers 

For NBFCs specializing in gold loans, these changes could mean substantial operational adjustments. They might shift focus toward EMI-based products rather than traditional bullet loans, Crisil suggests. Some might also implement periodic interest collection from customers to manage LTVs effectively. 

For borrowers, however, the new rules could mean smaller loans against their gold jewelry and reduced flexibility in loan renewals, potentially pushing some toward other credit options. 

What’s the big picture? 

These parallel moves highlight a broader regulatory philosophy: preemptive action over reactive measures. By addressing potential issues before they become systemic problems, RBI is practicing preventive regulation. 

This is especially important in a time of unprecedented gold prices. While rising gold values theoretically increase borrowers' collateral worth, they also create potential for market distortions if lending practices aren't standardized. 

As gold continues its glittering run, both lenders and borrowers need to adapt to this new regulatory environment. The gold rush isn't over; it's just getting more structured. 

RBI has been headstrong about safeguarding borrowers with these guardrails, but the regulator has also been thinking in favor of the lenders. RBI seems to have extended a fascinating opportunity hidden in plain right. Lenders themselves can now act as LSPs for other lenders. This means that when a borrower doesn't qualify for a bank's own products, instead of rejection, The bank could potentially be able to present alternative offers from partner lenders, with the right agreements and customer consent in place.  

The phrase "including another RE" acknowledges that one Regulated Entity can act as a Lending Service Provider for another Regulated Entity. This, in my very limited knowledge, could be interpreted as effectively transforming every digital lender into a potential marketplace LSP - thus, revolutionizing customer journeys. This could effectively transform every lending app into a potential marketplace, revolutionizing customer journeys from binary approval/rejection to a spectrum of options tailored to borrower profiles. 

Forward-thinking lenders can seize this to improve conversion rates, expand their addressable market, and enhance customer experience without additional acquisition costs. RBI's approach across the lending landscape seems simple: recognize innovation, create frameworks that allow it to flourish, but ensure it happens with adequate consumer protection. The pattern is clear. 

That's all for this week. I've included some reading recommendations below. 

Reading list:  

1. Reserve Bank of India (Digital Lending) Directions, 20205  

2. RBI releases comprehensive Digital Lending Directions 2025  

3. Gold loan business to face headwinds as RBI tightens regulation  

4. Gold loans have all the glitter in retail lending  

Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on Twitter here and follow FinBox on LinkedIn to always get updates. 

Cheers,  

Mayank 

All opinions expressed are my own and do not necessarily reflect the views of FinBox or its promoters.