RBI Intensifies Scrutiny on P2P Lending Platforms

• 23 Aug 2024

Source: BS

The Reserve Bank of India (RBI) has intensified its regulatory scrutiny on Non-Banking Financial Company–Peer to Peer Lending Platform (P2P) lending platforms following the discovery of multiple regulatory violations, including high levels of non-performing assets (NPAs).

• RBI identified violations, including unauthorised deposit acceptance and unusually high balances in escrow accounts raised concerns during RBI’s review.
• Some P2P platforms allowed lenders to recall funds prematurely, replacing them with new lenders who were unaware of the loans they were taking over, mimicking Ponzi schemes.
  • A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors.
    • The Ponzi scheme is named after Charles Ponzi, who in 1919 in Boston, United States ran a fraudulent investment scheme promising to double investment in 90 days.
• P2P lending platforms enable individuals to lend directly to borrowers via RBI-regulated NBFCs, facilitating quick loan disbursements for short-term needs.
• RBI's guidelines state that NBFC-P2P entities should only act as intermediaries without assuming any credit risk, a norm that was found to be violated.
  • P2P platforms cannot promote peer-to-peer lending as an investment product with features like assured minimum returns or liquidity options.

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