RBI to issue guidelines for peer-to-peer lending as NBFC today

RBI last month mentioned that peer-to-peer lending platform has been notified as an NBFC under section 45I (f) (iii) of the Reserve Bank of India Act, 1934.

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While maintaining a status quo in the fourth bi-monthly monetary policy for FY18, the Reserve Bank of India issued a discussion paper on regulation of P2P platform as NBFC.

As per the gazzette notification published on September 18, 2017, the peer-to-peer lending platform has been notified as an NBFC under section 45I (f) (iii) of the Reserve Bank of India Act, 1934.

RBI said, "Consequently, the central bank is issuing regulations for NBFC (P2P) today."

As per RBI, the P2P lending is a form of crowd-funding used to raise loans which are paid back with interest. It can be defined as the use of an online platform that matches lenders with borrowers in order to provide unsecured loans.

Fees are paid to the platform by both the lender as well as the borrower.

The borrowers pay an origination fee (either a flat rate fee or as a percentage of the loan amount raised) according to their risk category.

The lenders, depending on the terms of the platform, have to pay an administration fee and an additional fee if they choose to use any additional service (e.g. legal advice etc.), which the platform may provide.

This platform provides the service of collecting loan repayments and doing preliminary assessment on the borrower’s creditworthiness.

In its consultation paper released in April 2016, some of the RBI suggested framework for P2P lenders are given below.

P2P platforms should be set up as a compamy with minimum capital of Rs 2 crore requirement.

Funds shoud move directly from lender's bank account to borrower's bank account in order to eliminate threat of money laundering.

P2P firms are responsible for maintaining confidentially of customer data. These firms are however prohibited from guaranteeing extraordinary or assured returns.

Adequate disclosures must be made by the P2P firms to the central bank.

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