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P2P lending firms to be regulated by RBI

LiveMint logoLiveMint 20-09-2017 Malvika Joshi

Mumbai: All peer-to-peer lending (P2P) platforms will be regulated by the Reserve Bank of India (RBI), according to a government of India notification released on Wednesday. The gazette notification stated that all the P2P platforms will be treated as non-banking financial companies (NBFCs) and will be brought under the ambit of the banking regulator.

“The Reserve Bank of India, on being satisfied that it is necessary to do so, in exercise of the powers conferred on it by... the Reserve Bank of India Act 1934, (2 of 1934) with prior approval from the government, hereby specifies, a non-banking institution that carries on the business of a peer to peer lending platform to be a non-banking financial company,” the notification sent by RBI to the government stated.

The notification is a precursor to the guidelines that the RBI is likely to release for regulation of P2P lending in India. On 13 September, executive director at RBI Sudarshan Sen had said at a conference in Mumbai that the regulator was waiting for a gazette notification from the government specifying that the P2P platforms will fall under RBI’s regulatory purview.

“First, we need the government to notify p-2-p platforms as an entity to be regulated by RBI. That requires a gazette notification. Once that happens, we come out with regulation,” he said, according to a report by the Press Trust of India. Sen had further said that once the gazette notification comes out, the regulatory guidelines finalized by the central bank will soon be released.

The RBI had floated a consultation paper in April 2016. “Although nascent in India and not significant in value yet, the potential benefits that P2P lending promises to various stakeholders (to the borrowers, lenders, agencies etc.) and its associated risks to the financial system are too important to be ignored,” the regulator stated in the consultation paper.

The regulator had argued in favour of regulating the P2P lending entities in the consultation paper, stating that the sector has the potential to create “disrupt the financial sector and throw surprises”. The paper further stated that the importance of an alternative lending channel which the P2P platforms are offering also needs to be acknowledged.

“P2P lending promotes alternative forms of finance, where formal finance is unable to reach and also has the potential to soften the lending rates as a result of lower operational costs and enhanced competition with the traditional lending channels. If properly regulated, the P2P lending platforms can do this more effectively,” the regulator stated in the paper.

As per RBI, 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.

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