Reserve Bank of India has proposed new regulations for peer-to-peer (P2P) lending, which currently operates as an unregulated sector and is considered to be in the initial stages of development. Among the regulations proposed by RBI, the P2P lenders are to be registered as NBFCs (Non-Banking Financial Companies) so that they can be regulated by India’s central bank.
The P2P marketplace is currently involved in bringing borrowers and lenders together for various types of loan transactions that do not involve traditional banks or NBFCs. The key reason for RBI to propose these new measures is the need to control this segment’s growth which may impact operations of traditional financial enterprises in India. At present, an estimated 30 P2P lending companies are operating in India, up from the 20 P2P companies that were operating in 2015. The paper currently presented by RBI with regard to the proposed regulations, mentions the following key points:
- P2P companies would be structured as NBFCs so that they can be regulated by the Reserve Bank of India.
- P2P companies are to operate only as intermediaries i.e. they would not encroach on functions of traditional banks or NBFCs.
- The fund transfer should be made directly into the borrower’s account from the lender’s.
- Minimum capital requirement to set up a P2P platform would be fixed at Rs. 2 Crores and the companies cannot assure returns to the lenders
- The P2P platform must adhere to existing customer data confidentiality, requirements and loan recovery procedures similar to those used by NBFCs and traditional banks.
- A number of limitations regarding physical presence, board structure, leverage ratio, lender limits, have also been proposed by RBI with regard to the P2P business.