Contemporary Issues

[By Nalin Arora & Sofia Dash] The authors are students of Jindal Global Law School.   Introduction During the COVID-19 pandemic, the Indian Government had introduced the Press Note No. 3 (2020 Series) (“PN3”) on April 17, 2020 to safeguard Indian companies from opportunistic takeovers/acquisitions. This was enforced through amendments to Rule-6(a) of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (“NDI Rules”). The amended Rule-6(a) mandated government approval through an approval-route mechanism for investors from countries sharing a land border with India (“LBCs”) or where the beneficial owner of the investment is situated in a LBC. PN3 has thus become an important factor in cross-border investments involving an LBC nexus. More recently, On 10th March 2026, the government issued a press release indicating amendment to the current framework of PN3 (“amended PN3”). Herein, the government has endeavoured to bring in strategic changes in PN3,indicating a shift from a blanket screening to a measured approach. Following this, on 15th March 2026, the Department for Promotion of Industry and Internal Trade (“DPIIT”) issued Press Note 2 (2026 Series) (“PN2”). PN2 amended Paragraph 3.1.1. of the Consolidated FDI Policy to enforce the revised framework introduced under the amended PN3. Furthermore, the Ministry of Finance notified the Foreign Exchange Management (NDI) (Amendment) Rules, 2026 on 1st May 2026, amending Rule 6 of NDI Rules, which aided in the formalisation of the amended PN3. Recently, on 4th May 2026, the DPIIT also issued an updated Standard Operating Procedure (“SOP”) to process future Foreign Direct Investment (“FDI”) proposals. Against this backdrop and recent legal developments, this article argues that while the amended PN3 offers much awaited relief for investors, it falls short of the structural stability India’s investment screening framework needs. The amended PN3’s geography-first logic is highly vulnerable to layered ownership structures and misuse due to insufficient clarity on the definition of key terms. The article will further draw a comparative analysis with the existing models in the United States of America (“USA”) and the United Kingdom (“UK”) to conclude that the amended PN3 is a reform beset with uncertainty and loopholes. Background: The Existing Framework and its Shortcomings PN3 in its original form had mandated all non-resident investors from LBC(s), even ones having beneficial ownership, to go through the approval-route. It did not define “beneficial ownership” which created a definitional vacuum given that the term has different meanings under the Companies Act, 2013 and the Prevention of Money Laundering Act, 2002 (“PMLA”). This led to inconsistent compliance across authorized dealer banks. In PN3’s implementation over the past 6-years, it has practically led to only 124 investment approvals out of a whopping 526 FDI proposals, 201 rejections and the balance under review, indefinitely, as per media reports in the Economic Times, Legal500, and Chambers & Partners. This led to a lot of unintended victims. Various blue-chip PE, VC funds domiciled in countries in Europe and America that were never intended to be caught by the net of PN3 ended up being trapped due to minute participation by LBC investors. For instance, a fund domiciled in the USA with a mere 0.5% Chinese Limited Partner investment would be subjected to the same government-approval route burden as a 100% China-backed investor. Thus, the amended PN3 provides no resolution to such an unintended conflation. Decoding the Amendment: Key Features The amended PN3 aims to fill-up the interpretive gap for “beneficial ownership” by importing the definition from the PMLA. This is supplemented with a 10% de minimis threshold which allows investors to invest through the automatic-route in case they are non-controlling in nature and fall within this threshold. However, investors must pay heed to Paragraph 3.1.1(d) of the amended Consolidated FDI Policy, introduced under PN2, which states that any investment which has any direct/indirect LBC ownership, regardless of whether it falls under the 10% de minimis threshold advantage or not, is subjected to a mandatory reporting obligation. Thus, the Indian investee company must mandatorily report the investment to the DPIIT as per the format prescribed in the SOP. This reporting obligation is not limited to future/fresh investments but also applies to transfers of existing FDI where such transfers amount to a beneficial ownership within the LBC nexus. In essence, this highlights the redundancy of the 10% de minimis threshold advantage since despite the option of an automatic approval-route, the investors are burdened with additional compliance obligations. The shift is merely from prior-approval to post-investment disclosure. Furthermore, applications for investments that require government approval, for instance, investments in manufacturing capital goods, electronic capital goods, electronic components, polysilicon, and ingot-wafer sectors shall be eligible for an expedited 60-day clearance. In these cases, the majority shareholding and control of the investee entity will be with resident Indian citizen(s) and/or resident Indian entity(ies) owned and controlled by resident Indian citizen(s), at all times. The government has also retained the ability to revise this list. These changes could revive previously stalled capital flows and increase fundraising for technology companies ahead of IPOs. The de-minimis threshold helps resolve a multitude of concerns for security for PE/VC funds, with passive LBC partners, since previously, such fundraising took months for approval. Additionally, the 60-day clearance may facilitate expansion of manufacturing units in India since it enables companies to enter into joint ventures with foreign players, to improve and adopt nascent technologies and integrate global supply chains. However, whether these benefits outlined will be fully realised in practice or not is still an impending question. The primary condition for the 10% de minimis threshold is whether the investor is “non-controlling” or not, a term which has been left undefined – thereby leaving authorised dealer banks without any guidance on whether to accept / reject a FDI proposal. Critical Assessment of the Amended Framework Firstly, the “beneficial ownership” rule is applied at the level of the immediate investor, leading to significant structural issues. Where a Chinese entity directly holds 40% of a Singapore holding-company that invests into India, the PMLA-based test is triggered cleanly – 40% exceeds the

[By Divyansh Chauhan] The author is a student of Rajiv Gandhi National University of Law, Punjab Introduction: The Bordered Scope of the Strategic Investor In a move aimed at broadening institutional participation and deepening India’s capital markets, the Securities and Exchange Board of India (SEBI) has come up with changes meant to reform the meaning of Strategic Investor under the SEBI (Real Estate Investment Trusts) Regulations, 2014 and the SEBI (Infrastructure Investment Trusts) Regulations. The proposed revision attempts to align this definition with that of Qualified Institutional Buyers (QIBs) as provided in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. Before this, who could qualify as a Strategic Investor was limited to two specific definitions set out in India’s investment regulations. These rules applied to the two major investment structures used in real estate and infrastructure:  InvIT Regulations for Infrastructure Investment Trusts, which pool investor money to fund projects like highways, transmission lines, and power plants and secondly, REIT Regulations for Real Estate Investment Trusts, which invest in income-generating properties such as offices, malls, and commercial complexes. It focused on a few parties like infrastructure finance companies incorporated as NBFCs, scheduled commercial banks, multilateral and bilateral development financial institutions, systemically important NBFCs, foreign portfolio investors, insurance companies and mutual funds. While this structure maintained a focused pool of financially sound participants, it left limited room for a larger institutional base. The new definition includes other foreign portfolio investors than individuals, corporate bodies and family offices, an insurance company registered by the Insurance Regulatory and Development Authority of India (IRDAI), a mutual fund and any other qualified institutional buyer according to the definition of Regulation 2(1)(ss) of the ICDR Regulations. Yet the existing investment conditions remain unchanged, strategic investors are still required to commit a minimum of five per cent of the total offer size, with a lock-in period of 180 days after listing. Although the motive is to enhance institutional participation, the change might erode the distinction between strategic investment and simple financial anchoring, which is essential in ensuring the integrity of governance in a trust-wholes system. The paper reviews the updated definition of Strategic Investor as per the REIT and InvIT models by SEBI and evaluates its overall implications in the market. It highlights potential benefits like increased liquidity and institutional participation, while also addressing risks such as governance gaps, market concentration, and systemic vulnerabilities. The discussion goes beyond capital expansion to consider oversight, market signaling, and retail investor impact. Practical solutions, tiered classification, strategic intent statements, enhanced transparency, proportional lock-ins, and retail safeguards are proposed to ensure guidelines fulfil the purpose they were created for. Analysis of the Guidelines: Positives and Broader Implications Expanding the Capital Pool: Balancing Stability and Complexity The amendment is aimed at enticing a wider range of institutional capital, especially long-term investors like pension funds, insurance companies and provident funds. Such investors, commonly called patient capital, are in a better position to finance long gestation infrastructure and real estate projects. The definition presented under ICDR Regulations, in line with the QIB framework, facilitates the need to comply and enhances access to Indian REITs and InvITs by investors across the world. Nonetheless, the increase in the number of investing entities presents an intricate system of interconnections. Although these types of institutions are not invariably alike, they tend to share similar fiduciary rules, investment models and risk assumptions. These similarities might become correlated behaviour, such as massive simultaneous exits when there is economic stress, such as a sudden increase in interest rates or a liquidity squeeze. In this case, the depth that is generated by the increased number of participants might, paradoxically, increase the instability of the market. However, the amendment has the advantage of raising the amount of capital available, at the expense of linking the REITs and InvITs to the overall financial system, making them prone to external sector shocks. Regulatory Alignment and Governance Challenges Harmonising the Strategic Investor definition with the QIB category reduces procedural friction and encourages wider participation by automatically qualifying eligible institutions. This alignment creates a coherent investment framework across asset classes like REITs and InvITs, reducing regulatory friction. By eliminating duplicative checks and conflicting thresholds, it encourages broader institutional participation from mutual and pension funds, integrating these vehicles into the mainstream market and enhancing capital flow while simplifying the investment process for qualified institutions. Yet this alignment raises questions about the quality of oversight. The original definition implicitly favoured entities such as infrastructure finance companies and large insurers, which possess the sectoral expertise and managerial bandwidth to actively monitor sponsors. The cases of making this category broader to everyone that is a QIB water down this assumption. Passive or generalist investors can satisfy the financial requirement without taking part in asset-level management. This arises as a gap in governance whereby the role of checking the behavior of the sponsors gets scattered and may not be effective. Consequently, the system that is created to put strategic control in place ultimately presents the risk of becoming more symbolic than operational, expsing the minority investors even further. Signalling and the Shift in Market Perception Strategic Investors have long been used to give confidence to the market by showing that a deal is reliable. With bigger and more varied institutions coming in, this trust will likely grow, especially for small or retail investors. But this also changes what their involvement represents. Earlier, when a specialised infrastructure lender invested, it usually meant they had checked the project carefully. But when a pension fund or a general-purpose fund invests, it often shows trust in the overall sector or the economy, not in the details of a particular project. This new kind of capital is useful, but it also shifts how the market behaves. Instead of focusing on how well each project or asset is being managed, the market may start reacting more to broader financial trends. This could make REITs and InvITs more like standard products whose value moves up and down

[By Sejal Sahu and Anenya] The authors are students of Hidayatullah National Law University Introduction In the recent judgement of Hyeoksoo Son v. Moon June Seok & Anr., the Supreme Court (SC) emphasized that “the rule of law has a responsibility to protect the investments of foreign investors”. While reiterating that the accused had a right to a fair trial, the SC expressed a wider systemic responsibility to depict that fraud on foreign entities should not be left unexamined. The reinstitution of criminal charges in this matter is an indication of a departure in our system of purely procedural adjudication to one that consciously considers the economic impact of legal outcomes. This reflects a shift towards a substantive conception of the rule of law, where justice is not only procedural but also considers investor protection and legal integrity. Does this signal an evolving jurisprudence where constitutional values like the rule of law and due process are being reinforced? Meanwhile, does it reflect an alignment with the economic goal of making India an attractive and secure destination for foreign investment? This post examines how judicial justice is beginning to define the boundaries of a legal environment responsive to the demands of investments. The first part highlights the judicial shift, followed by an analysis of the SC’s verdict. The second part explores India’s legal system in fostering investors’ trust. The third part provides a comparative analysis of investor rights in other jurisdictions. Lastly, recommendations are proposed to strengthen investor protection and create a safe environment for them. Analysing The SC’s Verdict as A Beacon for Investor Protection The Indian subsidiary of the South Korean company Daechang Seat Automotive Pvt. Ltd. experienced a significant financial fraud involving the siphoning of GST money by outsourced advisors and former Chief Financial Officer (CFO) Moon June Seok. The High Court ruled in favour of the accused CFO due to the absence of direct evidence, raising concerns about investor protection. However, the Supreme Court interpreted the situation as an institutional failure with wider implications and recognised that leniency could undermine investor confidence and the credibility of India’s legal system. The SC cited the case of State of Haryana vs Bhajan Lal, where the limited scope of judicial interference was applied to Section 482 of Cr. P.C. and held that the apex court must refrain from conducting the mini-trial at the preliminary stage and assess only if a prima facie case exists. In its reasoning, the SC carefully balanced the interests of investors and constitutional fairness. It did not want the sheer enormity of the alleged financial wrongdoing to be used as an excuse to circumvent legal protections. This finding indicates that the SC was reluctant to prejudge guilt solely based on the presence of foreign investment. Instead, it reaffirmed that procedural fairness, grounded in the presumption of innocence, should guide the process. More importantly, the SC acknowledged that the validity of the Indian investment environment depends not only on the ability to prevent financial wrongdoing but also on upholding the legal rights of all stakeholders. By emphasizing this dual obligation, the SC conveyed to both domestic institutions and international investors that the Indian legal system is committed to due process, transparency, and accountability, a system where economic governance and constitutional integrity work in unison. Where’s the Safety Net? India’s Rule of Law Deficit in Investor Protection Investors have long been accustomed to structuring their regulatory compliance around contractual obligations. The transactions, hence, majorly depend upon the party’s legal ability to perform. The major portion of the A.T. Kearney 2025 index underscores the importance of legal and regulatory efficiency as the top two most important factors for investors when choosing where to make their investment. India’s performance has fallen short of attracting investments, where it manages to come at the 24th position out of 25 countries that make up the index. Hence, the judgment comes in to save the picture and provides hope in the clouded Indian investment landscape. In Vedanta Resources Plc v Union of India, the Court reiterated the public trust obligation of the State. However, it failed to offer any meaningful protection for investors. The court justified the state’s discretion in allocating resources and allowed for the retrospective amendment of contractual rights, which increased uncertainty for investors. Likewise, the enforcement of arbitral awards was only available after the dispute in Cairn Energy Plc v Republic of India. These examples show that even prominent investors do not receive proactive safeguarding or stabilization, but resort to the time-consuming process of litigation and corrective enforcement. A significant lack of the judiciary’s protective armour rests in its blunt-edged approach, with no relief to investors in terms of pivotal democratic rights. Even when upholding the rights of investors against illegal use of power by tax authorities in another case, the  SC reasoned that “case is of considerable public importance, especially on Investment, which is indispensable for a growing economy like India”, hence, outlining a very narrow and incentive-driven approach to the legal protection of investors in the country. The only relatively useful safeguard that emerges is Section 125 of the Companies Act, 2013, which offers limited relief through the Investor Education and Protection Fund (IEPF). It requires investors to transfer any unclaimed dividends or other amounts to the IEPF, which is further used to create awareness among investors and to clear any valid dues. It aims to stop the possible misappropriation of unutilised funds by the business institutions and offer a platform in which the rightful owners can reclaim their legitimate cash. However, the refund process through the IEPF is usually bureaucratic and opaque and thus discourages a large number of small investors from going forward with their claim. Furthermore, the outreach and education programs facilitated through the IEPF are regarded as small-scale and short-lived, particularly outside of urban centres. Section 125 deals only with unclaimed financial entitlements. It does not cover larger issues like fraudulent investment schemes, lack of transparency, or weak enforcement against corporate misconduct in India’s investor

[By Inika Dular] The author is a student of Rajiv Gandhi National University of Law, Punjab   Why the controversy? The recently released Kolhapuri chappal version by Prada, a design steeped in cultural history in Maharashtra, truly made waves, not for beauty but for a price tag of INR 1.2 lakh without meaningful acknowledgement of its Indian roots. Very shortly after, Dior showcased a USD 200,000 overcoat with mukaish embroidery, the metallic thread technique that has been perfected for centuries by artisans in Lucknow. This coat was lauded by fashion critics and jeered at by Indian designers and craft advocates. There was, however, little mention of Indian craftsmen who developed the technique in the marketing materials. The brand had organised a show in Mumbai in 2023, but crediting a country is not the same as crediting a community. The IP Law Blind Spot Intellectual Property (IP) law, as designed, protects novelty and individual authorship. Copyright guards original artistic work and economic value; design law protects industrial designs for a limited duration; and trademarks ensure brand identity. But what happens when the author is a community, the novelty is centuries old, and the economic value is repackaged by someone else? The Kolhapuri chappal, for instance, received a Geographical Indication (GI) tag in 2019, a tool meant to protect products rooted in place and tradition, like Champagne or Darjeeling tea. Yet, GIs only restrict unauthorised use within the jurisdiction of registration, unless India signs reciprocal protection agreements. Prada, headquartered in Italy, is not bound by the Indian GI regime, nor does Trade-Related Aspects of Intellectual Property Rights (TRIPS) (the WTO’s IP framework) enforce these protections meaningfully across borders. The ineffectiveness of the existing international arrangements becomes apparent when one observes the treatment of GI under the TRIPS Agreement. Article 22 of TRIPS caters only to basic protection for GIs in all products, requiring Member States to stop the use of a GI that misleads the public or amounts to unfair competition. At the same time, enhanced protection is provided for in Article 23 for only wines and spirits. Under this two-tier system, European alcoholic beverages enjoy a higher degree of protection than the handicrafts of African and many other developing countries. Articles 22 and 23 require member countries to refuse or invalidate trademark registrations containing false geographical indications, but it is for wines and spirits alone that such protection stands, regardless of whether the public is being misled. Indian courts have had to fight these issues through landmark decisions revealing the imbalance in IP protection. In Scotch Whisky Association v. Pravara Sahakari Shakkara Karkhana, the Bombay High Court recognized GI protection for Scotch whisky without any Indian registration, thereby indicating how international brands can rely on their reputation for protection. This recognition was, however, not extended reciprocally to Indian traditional crafts in foreign jurisdictions, where local artisans do not have the resources or legal standing to pursue this sort of protection. The case law reveals a disturbing tendency: the courts in India have tended to exhibit sympathy toward foreign GIs for matters of international reputation and consumer recognition, whereas hardly ever do Indian traditional crafts stand for such recognition abroad. That judicial discrimination is indeed but a superficial lineal manifestation of deeper, embedded structural inequities afflicting the global IP structure; that is to say, consumers of a market are made aware through marketing expenditures by well-gelded established brands; such consumer awareness is accepted by courts as an interest worthy of protection, and such an interest can be denied to traditional artisans aiming at establishing a market from within their informal networks. What Dior Gets to Do, Mukaish Workers Can’t Let us go back to the Mukaish overcoat again. This technique, which employs twisting micro-thin metallic wires into fabric patterns, goes way back to the Mughal era and is still kept alive by the underpaid artisans working in the narrow alleys of Lucknow. Contrary to this electrifying history, a Dior product, whose price is equal to what these artisans can earn in a lifetime, never made any mention of these craftsmen, nor did they share any royalties or enter into any form of collaboration. If an Indian label tried to reverse-engineer the Dior coat, and managed to get hold of its look and feel, it could face suits for design infringement, DMCA takedowns, and brand dilution claims. But there is no reciprocal right available to these craftsmen. Presently, the IP law setup can perhaps be described by the nomenclature: ‘lawful cultural piracy.’ The Indian Designs Act, 2000, ostensibly protects industrial design but systematically excludes traditional crafts. Section 2(d) defines design through the lens of industrial manufacture and does not cater to the domain of community craftsmanship, wherein designs are generated on an organic basis through mutational changes across generations. Section 4 prescribes that the design be new, but this demands an impossible standard for an ancient technique like that of mukaish work, and Section 11 boldly offers just 10 years of protection, which is terribly short for traditional designs that have been molded by generations of cultural expression. The enforcement asymmetry finds manifestation in the outcome of litigation. Indian courts have favoured Western luxury brands over Indian manufacturers. The Delhi High Court, in the case of Louis Vuitton v. Haute24.com, granted a permanent injunction against and awarded damages to the plaintiffs against Indian defendants. In Louis Vuitton Malletier v. Futuretimes Technology India Private Limited, the Court awarded ₹20 lakh damages in favour of the French luxury house for trademark infringement. These cases reveal how, within a matter of months, the established brands get ex parte interim injunctions, while the traditional artisans have none at their disposal. In contrast, traditional artisans face an evidentiary problem beyond the reach of the legal regime. How does one prove ownership of techniques passed down through generations without written records? The individual proprietary focus of Section 5 of the Indian Designs Act actually works against traditional handicrafts of a collective nature, effectively rendering entire communities legally invisible

[By Shashwat Shukla & Kumar Aryan] The authors are students of National Law University Delhi.   Introduction India is emerging as one of the world’s fastest growing economies incentivizing global markets to claim a piece of this pie. Foreign banks are keen on deals in India especially as it angles for regional trade agreements. Such pacts could open up new opportunities in India for global lenders elsewhere in Asia and the Middle East. Moreover, the Indian banking regulator has shown willingness towards the entry of these foreign banks in the Indian banking sector in order to introduce a fresh stream of long-term capital into the market. The RBI last month relaxed its rules to let a Japanese bank, Sumitomo Mitsui Financial Group Inc., acquire 20% stake in YES BANK amidst reports of two foreign institutions vying for a stake in IDBI Bank. In light of these developments, certain impediments can act as deterrents for such stake sales. We can trace the policy architecture when it comes to letting foreign banks enter the Indian market back to 1991 when Committee on the Financial System (CFS) was established to examine the existing financial system and make recommendations for reforms in India. One of the objectives of the CFS was to introduce competition into the banking system by encouraging the entry of new foreign banks and the expansion of existing foreign banks. This objective becomes all the more crucial to adopt and formulate a regulatory approach in alignment with the current economic ambitions of the state. While there are norms established by the RBI which puts a cap of 26% on voting rights of a promoter of a registered banking company, which serves as protection from excessive control by a single entity over a sector which is of national economic relevance. The same, as will be argued in this article, is not in consonance with the overall regulatory framework and the objective which the regulator seeks to achieve. Hence, an objective reconsideration of the quantum of these caps is required. This article is structured into four key sections, the next section examines the regulatory framework with a focus on RBI and FDI norms. Following this, the section critically analyses the rationale and drawbacks of the voting rights cap, drawing on the global best practises. The article concludes by offering a forward-looking perspective on recalibrating regulatory policy to align with India’s growth ambitions. Regulatory Framework Governing Foreign Ownership in Indian Banks When identifying structural regulatory flaws, it becomes crucial to look at the entirety of the regulatory framework governing any concerned transaction. In the case of foreign banks or entities seeking to acquire a stake in Indian private sector banks, FDI rules are the primary regulations that govern all foreign long term capital investments in Indian entities. While FDI rules do permit acquisition of up to 74% of any Indian private bank by a foreign entity with government approval (up to 49% through automatic route), the rules of RBI on holding and acquiring of Indian banks puts a cap of 26% of voting rights for promoters and a cap of 15% on investments by financial institutions. Furthermore, the SEBI Takeover Code mandates that if any company acquires a 25% stake in another company, then they will be required to further make an open offer to acquire 26% of that entity, effectively giving the acquiring company a majority stake of the acquired company. This is done to give other shareholders an opportunity to leave their stake in the company where the leadership is changing. However, in the context of the present transaction, the dilemma for foreign companies arises when they try to acquire an Indian bank, as soon as they hit the 25% mark, they will be mandatorily required to make an offer for majority stake meanwhile the RBI rules will not let them have voting rights proportional to the stake they will be required to acquire due to the 26% cap. Therefore, any increase in the 26% cap on voting rights, or the 15% investment threshold could encourage foreign bank investors. There could be opportunities for investments in India’s mid-sized banks by foreign banks looking to expand their presence in India, although it can be inferred that the RBI’s preference is for foreign banks with a strong performance and governance record to acquire stakes larger than 26% through wholly owned Indian subsidiaries regulated in India. Therefore, the current regulatory framework severely discourages any foreign entity to acquire a stake of more than 25% because of the takeover code, effectively defeating the objective RBI is seeking to achieve. Reforming the Cap: A Case for Phased Liberalisation The regulations were brought to ensure diversification and prevent the shareholders from dominating bank policy or ownership. This was in line with protecting financial stability and public interest. The regulator is trying to ensure bank governance remains dispersed by capping it acts as a shield against the takeovers and instability that may be created by the exit of a single investor. Though the RBI’s framework stresses on having a cautious approach to foreign control by the diversification route, the 26% voting cap is a unique feature, as major countries allow shareholders voting rights in sync with their equity. The capping, as a result, leads to a situation where even highly capable foreign banks cannot control the board decision and have to comply with strict voting limit requirements, and this deters them from entering the Indian ecosystem. The ownership restrains are codified in the Banking Regulation Act and the RBI Guidelines, which fit into a broader Indian framework, emphasising fit and proper test and RBI approvals for any significant bank investor. These legal safeguards have created major impediments for the burgeoning economy, which currently finds itself in a capital shortfall. As per one of the RBI reports, the credit to GDP ratio in India, i.e., 90% lags much behind the global average of approximately 113% highlighting the loan deficit market. Strategic investments by way of long-term infusion of capital

[By Atish Biswas] The author is a student of The West Bengal National University of Juridical Sciences. Introduction Digital lending, through websites and applications, has transformed the way individuals borrow money by integrating technical innovation with traditional banking services. This has resulted in easy and simple borrowing, quicker loan disbursement with fewer paperwork, and increased credit availability for a wider range of individuals. However, several concerns were raised regarding the business operations and conduct of these platforms, data privacy breaches, and misuse of data collected. To investigate these issues, the Reserve Bank of India (“RBI”) had set up a Working Group in 2021. Pursuant to the RBI’s Working Group’s Recommendations on Digital Lending[1], the RBI released Guidelines on Digital Lending in September 2022. The Digital Lending Guidelines, along with the Default Loss Guarantee Guidelines and other Circulars, formed the existing Digital Lending Framework in India. On 8 May 2025, the RBI released the Digital Lending Directions, 2025 (“2025 Directions”), consolidating, streamlining, and updating the regulatory framework that governs digital lending.[2] This article analyses the new Digital Lending Directions and suggests some future reforms. Key Changes The Reserve Bank of India’s 2025 Directions on Digital Lending broaden the regulatory scope and tighten compliance to enhance customer protection, data privacy, and institutional accountability. The definition of “Digital Lending” remains unchanged, referring to “remote and automated lending process, largely by use of seamless digital technologies for customer acquisition, credit assessment, loan approval, disbursement, recovery, and associated customer service”. However, its applicability has been expanded. In addition to commercial banks, co-operative banks, and NBFCs, All-India Financial Institutions are now covered under the framework. Furthermore, Digital Lending Apps (DLAs) now include any web or mobile app offering digital lending services, either standalone or as part of a larger suite. The definition of Lending Service Providers (LSPs) has been expanded to include not just agents of Regulated Entities (REs) but also those acting as LSPs for other REs, provided they are involved in the digital lending process. The 2025 Directions impose additional compliance obligations on REs. REs must enter into written contracts with LSPs, clearly defining their roles, rights, and responsibilities. REs have to periodically review the conduct of LSPs and enforce accountability. If LSPs serve multiple lenders, REs must ensure neutrality and transparency in loan offers. Creditworthiness assessments must, at a minimum, consider the borrower’s age, occupation, and income. REs have been allowed to process data outside India is now permitted, but processed data must be repatriated and deleted from foreign servers within 24 hours. The 2025 Directions lay down various measures to protect borrowers. REs are required to publicly display key details on digital products, grievance redress mechanisms, and privacy policies, along with links to the RBI’s CMS and Sachet Portal. All DLAs must be reported on the RBI’s Centralised Information Management System (CIMS). Any increase in credit limit must be explicitly requested by the borrower and recorded. Lending apps are barred from accessing sensitive mobile data, and LSPs may only retain borrower data as long as necessary. Camera and microphone use is restricted to onboarding with borrower consent. Borrowers can exit loans without penalty within a board-determined “cooling-off” period (minimum one day). Increased Scrutiny: A Positive for the Digital Lending Sector? The 2025 Directions brings digital lending participants under the ambit of a risk-based framework, balancing innovation with consumer safeguards. It consolidates fragmented guidelines into a unified framework and removes ambiguities in earlier definitions. The change in definition of LSP clearly lays down who is covered under the new Directions. By explicitly mentioning that only agents involved in the Digital Lending process are to be covered under the Directions, it clarifies that the Directions are not applicable to agents involved in non-digital loans, who would be covered under the RBI’s Directions on Outsourcing of Financial Services. Expanded definitions bring previously unregulated fintech intermediaries under scrutiny. The 2025 Directions is a positive step towards ensuring transparency and accountability in the Digital Lending Sector in India. It reduces the possibility of misrepresentation or deception in loan offers and enables productive cooperation between REs and LSPs while protecting borrowers’ interests. Furthermore, the Directions align data collection, processing, and storage with the DPDP Act. However, the success of these Directions will depend on monitoring by the RBI and implementation of the Directions. One of the most significant changes brought about by the Direction is the creation of the CIMS Portal, a public repository of authorised DLAs. The proliferation of unauthorised DLAs has posed a significant challenge to regulators and the industry. With new digital lending apps appearing frequently, it is challenging for consumers to distinguish between legitimate and dubious platforms. The rise of unauthorised DLAs erodes consumer confidence in Digital Lending. To counter this problem, the RBI Working Group had proposed a ‘Whitelisting Framework’. It recommended setting up an independent nodal agency named Digital India Trust Agency, which would verify DLAs and maintain a public repository of authorised DLAs. The RBI has adopted a modified version of this framework, with the RBI being the nodal agency. The public repository will serve as a reference point for individuals seeking loans, allowing them to confirm whether a digital lending app is officially recognised and regulated. The New Digital Lending Framework: A Missed Opportunity? Despite the positives, the new Digital Lending Framework misses certain issues. Borrowers have been left unprotected against potential data breaches and the pitfalls of automated decision making. Furthermore, there are no changes concerning regulations relating to Short-Term Credit Products. Baseline Cybersecurity Standards to Prevent Data Breaches The RBI Working Group recommended the formulation of baseline digital hygiene guidelines and technology and cybersecurity standards for LSPs and DLAs. Uniform technical/cybersecurity standards and baseline digital health guidelines are necessary for safeguarding sensitive borrower data. With digital lending apps handling large volumes of personal and financial information, the use of outdated security and technical measures can increase the risk of data breaches and misuse of customer information.[3] Algorithmic Fairness DLAs are relying increasingly on automated decision-making (“ADM”) for