The Reserve Bank of India (RBI) is looking to treat online peer-to-peer (P2P) lending platforms as non-banking finance companies (NBFCs) and bring their activities under its purview, it said in a consultation paper. The RBI is looking to regulate the sector with measures including requiring minimum capital of Rs 2 crore or prohibiting them from promising "extraordinary returns." A report by Mint points out that there are currently about 30 online (P2P) lending platforms in the country. The RBI also defined P2P lending as a form of crowd funding used to raise unsecured loans which are paid back with interest. It added that it took into consideration Securities Exchange Board of India's guidelines on crowd funding, but clarified that since P2P lending it is not a transaction where equity or debt is exchanged, it would come under the RBI's ambit. Here is a quick lowdown of the consultation paper: Regulatory framework proposed - Permitted activity: P2P lending platforms will only act as intermediaries between borrowers and lenders. The lending and borrowing activity will not be reflected in balance sheets. The platforms will be prohibited from giving any assured return either directly or indirectly. Platforms will be allowed to opine on the suitability of a lender and creditworthiness of a borrower. Funds will have to move directly from the lender’s bank account to the borrower’s bank account to prevent money laundering. Cross border transactions are not allowed by platforms as they would violate Foreign Exchange Management Act (FEMA) regulations. - Prudential requirements A minimum…
