April 28, 2016
Seeking to regulate the growing peer-to-peer (P2P) lending activity in the country, the Reserve Bank of India has issued a consultation paper proposing to prohibit cross-border transactions and limit money transfer only between lender and borrowers’s bank account to eliminate possibility of money laundering. The RBI has also proposed a minimum Rs 2 crore capital requirement for platforms. The central bank has said that it would prescribe leverage ratio at a later date “so that the platforms do not expand with indiscriminate leverage.
Given that the lenders may include uninformed individuals, prudential limits on maximum contribution by a lender to a borrower/segment of activity could also be specified.” It has proposed prohibiting P2P platforms from promising or suggesting a promise of extraordinary returns, which implies some form of guarantee of returns to lenders. P2P lending are online platform that matches lenders with borrowers in order to provide unsecured loans. The borrower can either be an individual or a legal person requiring a loan. The interest rate may be set by the platform or by mutual agreement between the borrower and the lender. Fees are paid to the platform by both the lender as well as the borrower. The paper proposed that P2P platforms could be registered only as an intermediary limited to bringing the borrower and lender together without the lending and borrowing getting reflected on their balance sheet. The platforms will be prohibited from giving any assured return either directly or indirectly.