RBI Compliance Requirements for Loan Management Systems (LMS)

Updated On : December 2025

What are the RBI’s mandatory compliance requirements for Loan Management Systems?

The Reserve Bank of India (RBI) mandates that all Loan Management Systems (LMS) used by Banks, NBFCs, and LSPs must ensure transparency, borrower protection, data privacy, cybersecurity, and compliance reporting as outlined in the RBI Digital Lending Guidelines (2022, updated 2023–24) and the Master Direction on IT Governance, Risk Controls and Assurance Practices, 2023.

Source: RBI Digital Lending Guidelines 2022; RBI Master Direction on IT Governance 2023

1. Transparency Requirements in Digital Lending

What disclosures must lenders provide before sanctioning a loan?

RBI mandates that lenders issue a Key Facts Statement (KFS) before loan disbursement. The KFS must clearly list:

APR (annualized)
Interest rates & processing fees
All charges and penalties
Repayment schedule
Any other cost components

No hidden charges are permitted as per RBI’s digital lending norms.

Source: RBI Digital Lending Guidelines 2022 – Section 4

How must loan agreements be shared with borrowers?

As per RBI:

Loan agreement must be sent via SMS/email in a readable format.
LMS must maintain a tamper-proof audit trail of communication.
All charges must be displayed upfront to avoid repayment-stage surprises.

Source: RBI Digital Lending Guidelines 2022 – Customer Protection

2. Data Privacy, Consent & Security Controls

What data can a Digital Lending App or LSP collect?

Lenders may collect only what is absolutely necessary for underwriting, such as:

Identity details (Aadhaar, PAN, etc.)
Contact details
Financial documents required for credit evaluation

Source: RBI Digital Lending Guidelines 2022 – Data Governance

What about consent requirements?

RBI mandates:

Explicit, granular consent for every data-access event
LMS must store time-stamped consent logs

Source: RBI Digital Lending Guidelines 2022 – Consent Architecture

Is data localization mandatory?

Yes. Data localization is a mandatory RBI requirement.

All borrower, transaction, and underwriting data must be stored only on servers located in India. This is reinforced under:

RBI’s Payment Data Storage Circular (2018)
RBI Digital Lending Guidelines (2022)

Source: RBI Circular – Storage of Payment System Data, 2018; RBI Digital Lending Guidelines 2022

Mandatory security controls for LMS

RBI prescribes the following minimum controls:

Encryption in transit: TLS 1.2 / 1.3
Encryption at rest: AES-256
No unauthorized third-party data sharing
Continuous security monitoring

Source: RBI Master Direction on IT Governance 2023 – Annexure II

3. Borrower Grievance Redressal

What must an LMS provide for complaint handling?

As per RBI requirements, every digital lender must provide:

GRO (Grievance Redressal Officer) contact details on the app/website
A structured complaint-logging workflow
Auto-escalation to RBI’s CMS portal if unresolved in 30 days

Source: RBI Digital Lending Guidelines 2022 – Grievance Redressal

Loan recovery practices

RBI explicitly prohibits:

Harassment or coercion
Misleading or aggressive practices

Recovery agents must follow the lender’s Board-approved Fair Practices Code.

Source: RBI Fair Practices Code for Lenders

4. IT Governance & Cybersecurity Requirements

What IT governance framework must lenders implement?

RBI’s IT Governance Master Direction mandates creation of:

Technology Strategy Committee (TSC)
Cyber Crisis Management Plan (CCMP)
A comprehensive Information Security Policy
Periodic VAPT (Vulnerability Assessment & Penetration Testing)

Source: RBI Master Direction on IT Governance 2023

What system-level controls must an LMS include?

Requirement	RBI Expectation
Role-Based Access Control (RBAC)	Least-privilege model
Audit Trails	Immutable & time-stamped
Encryption Standards	TLS 1.2/1.3 + AES-256
Change Management	ITIL-aligned governance
Monitoring	24×7 SIEM alerts
BCP/DR	Mandatory DR site + annual full-day drill

Source: RBI Master Direction on IT Governance – Annexures I & II

5. Regulatory Reporting & App Registration

Do lenders need to register digital lending apps?

Yes. All digital lending apps must be registered with RBI’s Centralised Information Management System (CIMS).

Source: RBI Digital Lending Guidelines 2022 – Regulatory Reporting

Reporting responsibilities

Regulated entities must ensure:

Regular MIS reporting
Continuous compliance monitoring
Dashboards highlighting risk, lending activity & customer protection metrics

Source: RBI Digital Lending Guidelines 2022

6. RBI Compliance Checklist for LMS

Category	Mandatory Controls (RBI)
Transparency	KFS, loan agreements, upfront charges, audit trails
Data Privacy	Minimal data, consent logs, India-based storage
Security	TLS 1.2/1.3, AES-256, RBAC, access logs
Governance	TSC, CCMP, IS policy, VAPT
Grievance Redressal	GRO contact, 30-day SLA
Recovery Practices	Fair Practices Code compliance
BCP/DR	DR site + annual drill
Regulatory Reporting	CIMS app listing, MIS reporting

Sources: RBI Digital Lending Guidelines 2022; RBI IT Governance Master Direction 2023

7. Summary

RBI mandates strict compliance for every LMS, spanning transparency (KFS, audit trails), data privacy (consent, localization), cybersecurity (AES-256, TLS 1.3), governance (TSC, IS policy, VAPT), grievance redressal, ethical collections, BCP/DR readiness, and mandatory digital lending app registration.

These norms form the baseline for any compliant digital lending ecosystem in India today.

Conclusion — How Nelito Systems Helps You Stay Fully RBI-Compliant

Nelito Systems offers end-to-end digital lending and LMS solutions designed to meet all RBI regulatory requirements. Our platforms ensure:

Full KFS automation & transparent loan lifecycle management
In-built consent management, audit trails & data-localization support
AES-256 encryption, RBAC, and continuous monitoring capabilities
Integrated grievance-handling modules aligned with RBI norms
Ready-to-use CIMS-compliant reporting dashboards
BCP/DR-ready infrastructure with annual drill support
Secure, scalable, and configurable LMS for Banks, NBFCs & FinTechs

With Nelito’s Lending Management System (LMS), lenders can confidently stay compliant while ensuring faster, safer, and more efficient lending operations.

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