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Union Government notifies, P2P lending platforms to come under RBI’s Regulation - (20 Sep 2017)


The RBI has notified that, peer-to-peer (P2P) lending platforms is to be regulated and treated as non-banking financial companies (NBFCs) under Section 45I(f)(iii) of the Reserve Bank of India Act,1934. The Reserve Bank of India (RBI) has finalised norms for peer-to-peer (P2P) lending platforms and will release final guidelines soon. Peer to Peer lending is a form of crowd-funding and utilising an online platform that matches lenders with borrowers in order to provide un-secured loans to be paid back with interest. Further, 'Crowd Funding' is a method of funding a project or venture through small amounts of money raised from a large number of people, typically through a portal acting as an intermediary.

The borrower can either be an individual or a business requiring a loan. The lender can also be a natural or a legal person. Fee is paid to the platform by both the lender as well as the borrower. There are many variants of Peer to Peer lending platforms in terms of the nature and extent of services provided by them and global regulatory practices also vary. Presently, there is no clear regulatory framework in India governing the functioning of the Peer to Peer lending platforms. Consultation paper was floated in April 2016. The Consultation paper outlines the pros and cons of regulating the sector and proposes a suitable framework for regulating the activity, which includes minimum capital, permitted activity, governance requirements, fair practices code for customer dealing and data security. As per the consultation paper, the financial sector is not immune from the advent of online industry and its potential impact. Therefore, it is attracting attention of analysts, investors, customers, businesses and regulators in a major way. Peer-to-Peer (P2P) lending is one such business model that has gathered momentum globally and is taking roots in India.

P2P lending platforms would come under the purview of Reserve Bank’s regulation by defining P2P platforms as NBFCs under Section 45I(f)(iii) of the RBI Act, with issuance of notification in consultation with the Government of India. Further, RBI can issue directions under Sections 45JA and 45L of RBI Act, to such platforms regarding registration requirements and prudential norms. The proposed regulatory framework would encompass the permitted activity, prudential regulations on capital, governance, business continuity plan (BCP) and customer interface, apart from regulatory reporting. After the norms are set, RBI will have powers to regulate entities which are in the form of companies or cooperative societies. However, if the P2P platforms are run by individuals, proprietorship, partnership or Limited Liability Partnerships, it would not fall under the purview of RBI. Hence, it is essential that, P2P platforms adopt company structure. The notification can therefore specify that no entity other than a company can undertake this activity. This will render such services provided under any other organisational structure illegal. Regulation of P2P lending platforms would pave the way for taking action against defaulters.


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