RBI Strengthens Norms for P2P Lending Platforms to Enhance Transparency
- RBI tightens regulations for P2P lending platforms, prohibiting promotion as investment products with assured returns.
- New guidelines ban cross-selling of insurance products as credit enhancements on P2P platforms.
- RBI mandates that P2P platforms must match lenders and borrowers before loan disbursement and prohibits fund replacement between lenders.
On Friday, the Reserve Bank of India (RBI) tightened regulations for Non Banking Financial Company-Peer to Peer (NBFC-P2P) Lending Platforms to enhance transparency and compliance.
RBI’s decision is a response to multiple P2P platforms breaching existing regulations. These platforms bypass traditional banking channels, linking individual lenders directly with borrowers.
However, under the revised master direction issued by the RBI, P2P platforms are prohibited from promoting peer-to-peer lending as an investment product with features like tenure-linked assured minimum returns or liquidity options.
“The entire loss of principal or interest or both, if any, in respect of funds lent will be borne by the lenders,” RBI stated.
The guideline also states that the NBFC-P2P Lending Platform should not cross-sell any insurance product also, which is in the nature of credit enhancement or credit guarantee.
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Additionally, no loan should be disbursed unless the lenders and the borrowers have been matched/mapped as per the board-approved policy framed.
The platforms shall not utilize the funds of a lender for the replacement of any other lender, the RBI said.
The central bank announced that these revised norms take effect immediately.
Edited by Harshajit Sarmah
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