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The Reserve Bank of India has proposed to classify entities engaging in peer-to-peer (P2P) lending as non banking finance companies in a bid to bring them under its regulatory purview. There are about 30 companies in India which currently operate p2p lending platforms but they are doing so without any regulatory oversight.
In a consultation paper issued on Thursday, the RBI said, “If the sector is left unregulated altogether, there is the risk of unhealthy practices being adopted by one or more players, which may have deleterious consequences.”
Only those companies with a minimum capital of Rs 2 crore will be eligible to operate. No entity other than a company can undertake this activity. That’s because if the P2P platforms are run by individuals, proprietorship, partnership or Limited Liability Partnerships, it would not fall under the purview of RBI.
According to RBI, the P2P company could be registered only as an intermediary, which means the role of the platform would be limited to bringing the borrower and lender together without the lending and borrowing getting reflected on its balance sheet. The platforms will be prohibited from giving any assured return either directly or indirectly. The platforms will be allowed to opine on the suitability of a lender and creditworthiness of a borrower.
“It will also be mandated that funds will have to necessarily move directly from the lender’s bank account to the borrower’s bank account to obviate the threat of money laundering. The guidelines would also prohibit the platforms being used for any cross-border transaction in view of FEMA provisions relating to transactions between residents and non-residents,” RBI said.
The proposed regulation could ask for reasonable proportion of board members having financial sector background. The guidelines may also require the P2P lender to have a brick and mortar place of business in India. The management and operational personnel of the platform would need to be stationed within the country.
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