The Central Bank has reviewed and updated the Master Direction for Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017.
According to the recent circular, RBI said some of the entities adopted certain practices which are in violation of its regulations. “Such practices include, among others, violation of the prescribed funds transfer mechanism, promoting peer-to-peer lending as an investment product with features like tenure-linked assured minimum returns, providing liquidity options and at times acting like deposit takers and lenders, instead of being a platform,” it said.
The original master direction on NBFC – P2P lending platform (Reserve Bank) Directions, 2017, laid out clear rules for the operation of P2P lending platforms which serve as intermediaries in facilitating online transactions between lenders and borrowers.
However, RBI said it observed deviations from these rules, including violations related to funds transfer mechanisms, promoting P2P lending as an investment product, and practices resembling deposit-taking. To address these concerns, RBI revised and clarified several provisions of the directions
Here are the key changes, RBI has made
1. Credit Risk Prohibition: P2P platforms are now prohibited from assuming any credit risks.
2. No Credit Enhancements or Guarantees: These platforms cannot offer credit enhancements or provide guarantees.
3. Investment Cap: Individual lenders are restricted from investing more than ₹50 lakh cumulatively through P2P platforms.
4. Disclosure Requirements: Platforms must disclose any losses borne by lenders on principal or interest.
5. Prohibition on Cross-Selling: P2P platforms cannot cross-sell insurance products related to credit enhancement or guarantees.
These updates aim to create a safer and more transparent environment for both lenders and borrowers.
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