MUMBAI (Reuters) – India’s central bank on Friday tightened norms for peer-to-peer (P2P) lending platforms as some of these entities have violated regulations.
P2P lending sidesteps banks and financial institutions by connecting individual lenders with borrowers.
Such platforms shall not assume any credit risk arising out of transactions, provide credit enhancement or guarantee, the Reserve Bank of India (RBI) said in a statement.
The entire loss of principal or interest or both, if any, in respect of funds lent will be borne by the lenders, the central bank said.
The RBI has been intensifying their scrutiny of rapidly-growing consumer finance services, including P2P lending, to prevent systemic risks and protect consumer interest.
Reuters had reported in December that the RBI had asked P2P lending platforms to halt certain activities after inspections found rule violations and misleading sales practices.
P2P platforms will not cross sell any insurance product in nature of credit enhancement or credit guarantee, the RBI said.
They are also not permitted to promote peer to peer lending as an investment product and should make disclosures pertaining to losses borne by the lenders on principal or interest or both.
The platforms shall not utilize funds of a lender for the replacement of any other lender, the RBI said.
The revised norms come into effect immediately, the central bank said.
(Reporting by Siddhi Nayak; Editing by Mrigank Dhaniwala)
