India’s commercial lending sector has been on a steady growth path recently, with the numbers showing impressive record: gross banking credit increased to ₹143.3 lakh crore, more than ₹1.4 lakh crore worth of loan was sanctioned online just in 2023, and CIBIL expects NBFC loan books to grow by 13 to 15% during FY25-FY26.
While this rapid growth has brought forth greater opportunities, it has also drawn increased focus from regulatory authorities.
Therefore, the RBI (Reserve Bank of India), SEBI (Security Exchange Board of India), and other regulatory organisations have made oversight even stricter across key areas, like digital lending, credit reporting, AML (Anti-Money Laundering) and KYC (Know Your Customer).
Lenders now face tougher compliance rules. This can slow down operations, increase costs, create penalty risks, and in the worst cases, shut down the business.
Banks and NBFCs can’t treat compliance as an afterthought anymore. It’s got to be part of daily operations.
Let’s look at how lenders can manage India’s complex regulatory requirements.
Key Regulations Governing Commercial Lending in India
Commercial lending in India means juggling multiple regulators. Each one wants different paperwork, follows different timelines, and has different rules.
The main regulators you’ll deal with are:
The Reserve Bank of India: The RBI is the primary Indian banking regulator. Its guidelines cover banking operations, credit bureau reporting, fair lending practices, provisioning norms, co-lending rules, KYC, risk clarification, and exposure limits for both NFBCs and banks.
The RBI issued Detailed Directions in May 2025 to promote secure and transparent digital lending practices.
Besides RBI, lenders also need to follow these rules:
- Companies Act, 2013 for corporate governance.
- Prevention of Money Laundering Act (PMLA), 2002 – lenders must verify who borrowers are, put them into risk categories, and report suspicious transactions.
- The SARFAESI Act, 2002, which helps lenders recover credit from borrowers and take possession of the secured asset without legal proceedings.
- The Insolvency and Bankruptcy Code (IBC) 2016 gives lenders an unbiased opportunity to recover their debts.
- The IT Act, 2000, and Data Protection Guidelines govern how digital lending platforms store and share consumer data through the cloud or otherwise.
- CICRA, 2005 controls how lenders share borrower data with credit bureaus like CIBIL and Experian.
Knowing these rules is just step one. The hard part? Actually following them across all your lending operations.
Main Challenges in Commercial Lending in India
The rules are clear, but sticking to them without proper systems? That’s the real challenge. Even experienced lenders struggle with:
- Inconsistent Documentation Policies: Borrower information and documents vary by location, loan type, and customer category. When you collect and verify these manually, you often end up with compliance gaps during audits.
- Frequent Regulatory Updates: Regulatory guidelines and directions change frequently. Not all lenders have dedicated experts who can track these changes.
- Regulatory Ambiguity for Tech-Driven Models: New loan products like Buy-Now-Pay-Later (BNPL) plans and embedded credit options don’t fit neatly into existing regulations. This makes lenders unsure about how to set up these products in a way that regulators will accept.
- Complex KYC/AML Requirements: Enhanced due diligence has made customer verification really complex, especially for rural lending and first-time borrowers. This happens despite widespread eKYC tools.
- Resource Constraints: Manual compliance processes consume valuable staff time and budget, especially challenging for smaller lenders operating on thin margins.
These challenges might look scary, but smart lenders have figured out ways to tackle them.
Strategies to Effectively Overcome Commercial Lending Compliance Challenges
Lenders can manage these challenges successfully with clear internal procedures and automated lending systems. Smart lenders can tackle this in several ways:
1. Build a Compliance-First Culture
Make compliance everyone’s job, not just something for the legal team to worry about. Train your employees on how their roles can impact regulatory guidelines.
2. Develop a Regulatory Calendar
Build a monthly internal tracking system that checks and tracks all regulatory submissions, deadlines, and latest circulars. Assign this task to a dedicated team member or automate the process with modern loan management systems (LMS).
3. Implement Risk-Based Customer Categorisation
Categorise your borrowers based on risk level, business type, geography, demography, and repayment history. You can streamline this by integrating bank statement analysers and credit bureau data analysis into your loan origination process.
4. Standardise Documentation Processes
Clear documentation of loan processes, approval workflows, and reporting requirements eliminates confusion. You can also use pre-approved templates for KYC disclosures and loan agreements to further reduce discrepancies and legal risks.
5. Execute Periodic Internal Audits
Use comprehensive analytic suites to get deeper insights into operational processes. Run monthly compliance checks with them to review documentation and reporting accuracy and identify gaps.
6. Automate Lending Lifecycle
Use purpose-built compliance automation and commercial lending lifecycle management systems to automate the entire process — from collecting documents to onboarding customers and approving loans to managing delinquency and defaults.
For instance, integrating your processes with APIs for KYC, credit scores, GST filings, payment, or PAN verification can help you ensure every borrower meets regulatory criteria before approval.
How Lending Management Systems Can Help You Improve Compliance?
Modern lending platforms can turn compliance from a headache into an advantage. Here’s how technology helps with compliance issues:
1. Automates Regulatory Workflows
Smart lending systems prevent you from missing key steps in loan origination. Every loan gets processed with the right documents, KYC checks, and approvals.
2. Maintains Centralised, Searchable Audit Logs
Every process step, whether it is reviewing a loan application form or disbursing credit, is logged with timestamps and user activity, which makes it easy for you to respond to audit questions.
3. Digital KYC and Document Extraction
Document identification systems connect to GSTIN, UIDAI, and other bureau APIs to pull customer information and financial data directly. They can also extract data from cheques, utility bills, ITR forms, and establishment photos while tagging all data points accurately.
4. Generates Reports in Formats Approved by Regulatory Authorities
Whether it is filing STR under PMLA or classifying asset reports for RBI, the built-in compliance workflows help you create exportable formats on demand in minutes.
Platforms like Finezza integrate these capabilities to provide full compliance support for the entire lending lifecycle
Final Thoughts
Lenders must now treat compliance in commercial lending like a daily operational reality, rather than as a once-in-a-quarter legal checklist item.
With the regulatory environment changing frequently and becoming stricter with each release of circulars, manual tracking and disjointed systems simply won’t keep up.
Here’s where custom-designed technology, like Finezza, can help.
Finezza’s lending platform handles all these compliance challenges. It includes process automation, credit bureau reporting, real-time KYC and AML checks, secure data management, and accounting software integration for audits.
Ready to transform your compliance processes? See how Finezza’s integrated platform can automate your regulatory workflows and reduce compliance costs by up to 40%.
Book a demo today to discover how Finezza supports your compliance goals while accelerating your business growth.
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