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RBI increases scrutiny of peer-to-peer lending platforms: Report

RBI’s latest regulatory measures target P2P lending platforms, signaling tighter oversight in the fintech sector.

The Reserve Bank of India (RBI) is investigating compliance issues with peer-to-peer (P2P) lending platforms. This comes in light of reports that these platforms are underplaying risks by promising high returns to lenders and exhibiting flaws in their Know Your Customer (KYC) and loan distribution processes, according to MoneyControl on February 19.

P2P lending platforms connect borrowers and lenders directly without involving a bank or non-banking financial company (NBFC) to provide the loan. These entities require a NBFC-P2P license from RBI.

According to a Reuters report from last December, the central bank conducted inspections of at least ten P2P platforms between June and September last year and instructed some of them to halt certain activities after the inspections found rule violations. And now, it has reached out to those platforms that haven’t implemented changes prescribed earlier, a founder of a P2P platform told MoneyControl. RBI last week asked these entities to submit information about their onboarding process, customer profiles, agreements with lenders, tax returns, etc. and gave them a 24-hour deadline to respond, MoneyControl reported. P2P platforms have also eased on working with new partners in light of the regulatory scrutiny of the sector, The Economic Times reported last week.

This is not the first time the central bank is closely monitoring the online lending space. Last year, RBI’s surprise ban on 94 lending apps left the fintech lending ecosystem worried. The year before that, RBI’s norms on credit lines through prepaid payment instruments (PPIs) disrupted the wallets and prepaid card ecosystem. More recently, RBI last month clamped down on popular fintech company Paytm Payments Bank for non-compliance with various guidelines. In December, it announced that it is working on a comprehensive regulatory framework for web aggregators of loan products (WALP). The central bank in 2022 also issued digital lending guidelines for fintech operating in this sector. All these points towards increased scrutiny on fintech companies in the lending space and are in line with what RBI Deputy Governor Rabi Shankar last July: “Conceptually, a fintech entity providing characteristic banking services such as loans and payments is pretty much doing a banking activity. Such entities may not require a banking license, but they need to be regulated similarly to how such activities are regulated in a bank.”

However, despite these developments, the one area where the central bank is not able to address concerns effectively is the predatory loan apps space. While the RBI has said that it has prepared a list of official lending apps and shared it with the IT Ministry in an attempt to thwart fake apps, the details of this list are not public and predatory loan apps continue populating the Google Play Store and Apple App Store.

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