By Aniket Ghosh

Navigating Consent, Purpose Limitation and Regulatory Expectations Under India’s Data Protection Regime

Introduction: Why Data Privacy Has Become a Board-Level Issue in BFSI

India’s banking, financial services and insurance (“BFSI”) sector particularly digital lending platforms, NBFCs, fintech intermediaries, payment aggregators and neo-banks, operates at the intersection of high-velocity data collection and intense regulatory oversight. Credit underwriting, fraud prevention, customer onboarding, collections, and analytics are fundamentally data driven.

With the enactment of the Digital Personal Data Protection Act, 2023 (“DPDP Act”) and the subsequent notification of the Digital Personal Data Protection Rules, 2025 (“DPDP Rules”), data privacy compliance has moved from a peripheral IT concern to a core legal, governance and reputational risk.

For BFSI entities, the implications are particularly acute:

This article examines how India’s data protection framework applies to digital lending and financial services, identifies sector-specific compliance challenges, evaluates enforcement and penalty risks, and sets out a practical mitigation roadmap for regulated entities and fintech.

The Legal Framework: DPDP Act and DPDP Rules – What BFSI Must Know

Scope and Applicability

The DPDP Act applies to the processing of digital personal data where:

BFSI entities process personal data at every stage of the customer lifecycle including KYC, credit assessment, loan servicing, collections, grievance redressal, and analytics, bringing most operations squarely within the Act’s scope.

The law has extraterritorial reach: offshore fintechs or group entities processing Indian customers’ data in connection with goods or services offered in India may also be covered.

Key Concepts Relevant to Financial Services

Consent and Notice: The Core Compliance Challenge in Digital Lending

Consent as the Primary Ground

Under the DPDP Act, consent is the default legal basis for processing personal data. Consent must be:

For digital lenders, this presents immediate friction with legacy onboarding flows.

Notice Requirements Under the DPDP Rules

The DPDP Rules prescribe mandatory notice disclosures, including:

Bundled, vague or omnibus notices commonly used by fintech apps are unlikely to meet the standard.

Dark Patterns and Regulatory Scrutiny

Pre-ticked boxes, forced consent, and “take-it-or-leave-it” app permissions may be construed as invalid consent. In digital lending where users often have limited bargaining power this creates heightened enforcement risk.

Purpose Limitation and Data Minimisation: Rethinking Credit Models

Purpose Limitation

Personal data may be processed only for the purpose specified in the notice or for purposes reasonably incidental thereto.

For BFSI players, common risk areas include:

Data Minimisation

The DPDP Act mandates collection of only such data as is necessary for the stated purpose.

In practice, digital lenders often collect:

Unless clearly justified and disclosed, such practices may violate the minimisation principle.

Third-Party Sharing and Vendor Risk in BFSI

Data Processors and Downstream Liability

The DPDP Act places primary liability on the data fiduciary, even where processing is outsourced.

Common BFSI processors include:

The DPDP Rules require contractual safeguards, including:

Collections and Recovery Agents: A High-Risk Area

Aggressive recovery practices that are often outsourced, have already attracted scrutiny from RBI and courts. Under the DPDP framework, misuse of borrower data by agents can result in direct liability for the lender.

Cross-Border Data Transfers: Regulatory Uncertainty Continues

The DPDP Act permits cross-border transfers to countries notified by the Central Government. While the framework is more liberal than earlier drafts, BFSI entities must still:

Global fintechs operating hub-and-spoke data models must reassess their architecture.

Data Breaches and Incident Response: From IT Issue to Legal Crisis

Mandatory Breach Notification

The DPDP Act and Rules require reporting of personal data breaches to:

This applies regardless of fault, intent, or scale.

BFSI-Specific Exposure

Financial data breaches can result in:

A delayed or poorly handled breach response can compound liability.

Enhanced Obligations for Significant Data Fiduciaries

If notified as an SDF, BFSI entities must:

Large NBFCs, digital lending platforms, and payment intermediaries are prime candidates for SDF classification.

Penalties and Enforcement Risk

Monetary Penalties

The DPDP Act empowers the Data Protection Board to impose penalties up to INR 250 crore per violation, depending on:

Reputational and Commercial Impact

Beyond statutory penalties, BFSI entities face:

Data protection failures can materially impact valuation and market position.

Practical Compliance Roadmap for BFSI Entities

Conclusion: From Compliance Burden to Competitive Advantage

For the BFSI sector, data privacy compliance is no longer optional, cosmetic, or deferrable. The DPDP Act and Rules represent a structural shift in how financial institutions must view customer data not as a freely exploitable asset, but as a regulated trust.

Entities that proactively embed privacy into product design, governance and vendor management will not only mitigate enforcement risk but also build durable consumer confidence in an increasingly competitive digital financial ecosystem.