The Reserve Bank of India (RBI) has finalised norms for peer-to-peer (P2P) lending platforms and is expected to release final guidelines in 2-3 weeks, a top finance ministry official said. According to the official, the finance ministry has given its comments to the central bank and the latter is giving final touches to the rules. “We have given our comments to the RBI. The guidelines should be out soon. The norms will be out before July-end,” the official told PTI. He also said the finance ministry has recommended that these platforms be registered as non-banking financial institutions. “P2P platform needs to be regulated by the RBI so as to ensure players play by the rule,” the official said. According to the official, the P2P lending interface will come under the purview of RBI’s regulation by defining these platforms as NBFCs under the RBI Act by issuing a notification in consultation with the government.
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The proposed regulatory framework would encompass the permitted activity, regulations on capital, governance, business continuity plan and customer interface, apart from regulatory reporting, the official added. The RBI had floated a consultation paper in April 2016 on the such lending platforms. “P2P lending is one such business model that has gathered momentum globally and is taking root in India. Although nascent in India and not significant in value yet, potential benefits that P2P lending promises to various stakeholders (to borrowers, lenders, agencies etc) and its associated risks to the financial system are too important to be ignored,” the consultation paper said. 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.
The borrower can either be an individual or a legal person requiring a loan. The interest rate may be set by the platform or mutual agreement between the borrower and the lender. Fees are paid to the platform by both the lender as well as the borrower. Borrowers pay an origination fee — either a flat rate fee or as a percentage of the loan amount raised — according to their risk category. The lenders, depending on the terms of the platform, have to pay administration and additional fees if they choose to use any additional service for example, legal advice, which the platform may provide.