Can a borrower legally end up paying borrowing costs equivalent to 365% a year while simultaneously servicing half a dozen or more digital loans? According to a
new study by Moneylife Foundation, the answer is yes—and it stems from gaps in the current regulatory framework rather than violations of existing regulations. The report argues that although Reserve Bank of India (RBI) has significantly strengthened digital lending regulations, two crucial issues remain largely untouched: there is no effective limit on how many digital loans a borrower can accumulate and no ceiling on what those loans can ultimately cost.
The report comes at a time when app-based lending has emerged as the dominant channel for personal credit in India. During FY25-26, non-banking financial companies (NBFCs) operating primarily through digital platforms sanctioned 132mn (million) personal loans worth ₹2.15 lakh crore, accounting for 77% of all personal loans by number, although only 19% by value. The average digital loan size stood at ₹16,238.
The study was prepared by Tyuish Agarwal during his internship with Moneylife Foundation under the guidance of founder-trustee Sucheta Dalal and Aparna Ramachandra, founder-director of Rectify Credit, who leads the Foundation's credit counselling sessions. It is based on the Foundation's credit counselling experience, an analysis of borrower case records, a review of 110 digital lending applications and their backing entities, RBI regulations, comparative international practices and relevant legal precedents.
The report acknowledges that RBI's Digital Lending Directions have substantially improved transparency, strengthened borrower disclosures and made regulated entities accountable for the conduct of lending service-providers. However, it argues that the current regulatory framework continues to focus primarily on how loans are offered, rather than how many loans borrowers can accumulate or how expensive those loans ultimately become. As a result, borrowers are able to accumulate multiple loans across different platforms, often at effective borrowing costs far higher than the advertised interest rates.
Drawing upon counselling cases handled by the Foundation, the study found that many borrowers were servicing loan instalments that exceeded their monthly incomes. Among the 13 cases analysed in detail, monthly loan instalments were higher than reported monthly income in 11 cases, while eight households faced instalment obligations amounting to more than twice their monthly earnings. The median instalment-to-income ratio was close to 200%, suggesting that borrowers could meet repayments only by taking fresh loans or relying on other household income.
One case cited in the report involved a contract worker earning ₹12,000 a month. Although the household's combined monthly income was ₹22,000, it was required to service monthly repayments of ₹46,700 across six app-based loans. Another borrower had accumulated 30 active loans from different lenders.
The report also highlights the difference between advertised interest rates and the effective cost of borrowing after processing fees and short repayment tenures are taken into account. It cites examples where loans advertised at 36% annual interest worked out to an effective annual borrowing cost of 258%, while products priced at 1% per day amounted to 365% annually before compounding. It also found that roughly one-third of app-loan instances examined failed to disclose any interest rate, despite regulatory requirements.
According to the study, app-based loans often account for only a small proportion of a borrower's total outstanding debt but consume a disproportionately large share of monthly repayments due to their high costs and short repayment periods. Across the counselling cases examined, borrowers typically held between six and 30 active loans.
The report also examines how digital lenders use targeted advertising, behavioural nudges, pre-approved loan offers and personalised marketing to encourage repeat borrowing. It argues that frictionless loan approvals, combined with behavioural targeting, reduce the pause that traditionally accompanied borrowing decisions and contribute to loan accumulation.
Among its principal recommendations, the report urges RBI to introduce limits on the number of concurrent digital loans a borrower may hold and require lenders to verify a borrower’s existing loan exposure before sanctioning additional credit. It also recommends regulating the overall cost of digital loans through a ceiling on effective annual borrowing costs, strengthening enforcement of existing disclosure requirements and publishing a clear benchmark for what constitutes ‘excessive’ interest under NBFC regulations.
The report argues that its objective is not merely to document individual cases of borrower distress but to contribute to policy discussions on responsible digital lending through evidence-based research. It also emphasises the need for accessible and independent credit counselling to help borrowers address financial distress before it becomes unmanageable.
Moneylife Foundation has shared the report with the ministry of finance, the department of financial services, RBI, the Indian Banks' Association, major credit information companies and senior industry leaders for consideration. The Foundation hopes the study's findings will inform future regulatory and policy discussions on digital lending.
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