Digital lending has rapidly emerged as a transformative force in India’s financial sector, enabling quick, paperless loans through mobile apps and online portals. Startups and fintech companies have spearheaded this shift, targeting underserved individuals and small businesses. According to a report by Inc42, India's digital lending market is projected to reach $350 billion by 2026. This growth is driven by simplified onboarding processes, real-time credit scoring using alternate data (like mobile usage and social media behavior), and instant loan disbursals powered by automation. However, this explosive rise also invited risks. Unscrupulous apps began exploiting customers through opaque interest rates, aggressive recovery tactics, and misuse of personal data. To address these concerns, the Reserve Bank of India (RBI) stepped in with strict regulatory guidelines in 2022 and 2023. These rules mandate that all lending must occur through regulated entities (REs) such as banks or NBFCs, even if the loan is originated on a fintech platform. Moreover, disbursals and repayments must occur directly between borrower and RE accounts, eliminating third-party wallet intermediaries.The RBI also insisted on greater transparency: apps must clearly disclose interest rates, processing fees, and repayment schedules. Digital lenders must obtain explicit user consent for data collection and share how that data is stored and used. Additionally, a dedicated grievance redressal officer must be appointed for customer complaints. This shift has forced consolidation in the market. Many unregulated or non-compliant apps exited, while larger players aligned their operations with RBI rules. Traditional banks, once cautious, have started partnering with compliant fintechs to offer co-lending solutions—merging reach with risk control. In essence, while digital lending has democratized credit access, the RBI’s intervention ensures that innovation is balanced with consumer protection. Going forward, the challenge will be to foster responsible lending while promoting financial inclusion in a secure and ethical framework.