India’s Ministry of Finance introduced the draft Banning of Unregulated Lending Activities Bill (BULA) in December 2024, aiming to criminalize loan activities conducted by entities that lack proper regulatory authorisation—especially digital app–based lenders operating beyond the purview of the Reserve Bank of India (RBI). With stakeholder feedback collected until February 2025, consultations remain underway, and parliamentary introduction of the Bill is expected during the Monsoon Session (July–August 2025).
Why It Matters
India has seen widespread abuse by unregulated digital lending platforms: exorbitant rates, deceptive app practices, harassment in collections, and financial distress among vulnerable borrowers. The BULA Bill is designed to plug this regulatory gap by:
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Banning any lending activity not authorised by the RBI or other laws;
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Empowering enforcement agencies to act decisively;
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Establishing harsh penalties for infractions, including prison terms and heavy fines.
Core Features of the Draft Bill
1. Scope of Prohibited Activity
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Unregulated Lending: Defined as any credit provided by entities not registered under RBI or state institutional frameworks, excluding informal, interest‑free loans among relatives.
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Wrongful Inducement: Ban on deceptive advertising, misleading promises, or false forecasts used to lure borrowers to unregulated channels.
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Unlawful Recovery: Prohibition of coercive practices—harassment, intimidation, anonymous calls, or intrusion—aligned with RBI guidelines.
2. Enforcement Framework
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A designated Competent Authority—appointed by central or state governments—will have powers directly comparable to a civil court, including search, seizure, attachment of property, and summons.
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Cognizable and non‑bailable offences:
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Lending without licence: 2–7 years imprisonment, ₹2 lakh to ₹1 crore fine.
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Unlawful harassment in recovery: 3–10 years imprisonment, fines up to twice the loan amount.
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Repeat offenders: Up to ₹50 crore fine and 10 years jail time.
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CBI referral criteria: Cases spanning multiple states or international dimensions or involving high public interest are escalated to the CBI.
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Designated Courts: Trials to be heard in courts presided by District and Sessions Judges dedicated to BULA cases.
3. Public Transparency & Registry
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A central, accessible database of regulated lenders (similar to CERSAI’s deposit registry) will be maintained.
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Consumers can verify approved lenders and report suspicious/unregulated entities.
Experience Feedback & Consultation Status
Public and industry feedback—including dissent from NBFCs, fintech lenders, and intermediary platforms—was solicited before February 13, 2025. Issues raised include:
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The exclusion of lending entities just below RBI thresholds—often café‑based fintechs or small NBFCs—from regulation.
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Need for exemptions for informal peer loans, even outside close family circles.
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Constitutional clarity on definitions like “public lending activity”.
Potential Gaps and Critical Observations
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Broader lending activities: SME lenders not registered under RBI but active in retail credit may inadvertently fall outside the First Schedule, raising implementation risk.
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Digital platforms and intermediaries: App developers and those hosting lending interfaces are not currently mandated to vet or verify lender authorization.
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No interim borrower protections are provided during investigations—such as repayment moratoriums—raising concerns over undue borrower exposure.
Complementary Regulations
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The RBI’s Digital Lending Directions, 2025, which came into effect in May–June 2025, reinforce transparency, disclosures, and lender responsibility—specifically governing relationships between regulated lenders and Lending Service Providers (LSPs).
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The Bill is intended to supplement the Banning of Unregulated Deposit Schemes (BUDS) Act, 2019, targeting loan operators rather than deposit collectors.
Implications for Stakeholders
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Borrowers: Enhanced protection from predatory and unlawful lending and harassment practices.
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Fintech & NBFC Ecosystem: Unregulated digital lenders may be forced to transparently partner with regulated entities or exit lending altogether.
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Regulators & Law Enforcement: Need expedited capacity building—competent authorities, special courts, CBI coordination—to enforce effectively.
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Financial Inclusion Goals: There’s a delicate balance needed—while phasing out unregulated actors, India still relies heavily (especially in rural and low-income segments) on informal credit networks that fill gaps in financial access.
Outlook & Way Forward
With consultations complete and legal drafting underway, the BULA Bill is poised to be introduced in the upcoming Parliamentary Monsoon Session (from July 21, 2025). However, given competing legislative priorities—such as the Insurance Amendment Bill—its placement will depend on parliamentary bandwidth.
Once enacted, the legislation could transform India’s credit environment—sealing major loopholes in the digital lending sector while elevating standards for transparency, consumer protection, and institutional accountability.
