RBI heightened scrutiny of P2P lending platforms

The central bank, Reserve Bank of India (RBI) has enhanced the scrutiny of peer-to-peer (P2P) lending platforms after it was highlighted that they have breached norms, including KYC guidelines.

Last week, RBI sent emails to a few platforms asking for information regarding their onboarding process, customer profiles, agreements with lenders, IT systems, and so on, according to a news source. This includes details on returns filed, assets under management and financials.

“Everyone was given a 24-hour deadline to respond,” said one of the founders who received the email from the regulator.

P2P lending is now on RBI’s radar, after digital lending, as few platforms were observed to be working outside the preview of the guidelines, including flaws in the KYC process.

The regulator has engaged with all licensed platforms via email, besides conducting supervisory visits at their offices in New Delhi and Mumbai since September. Post-reviews, corrective measures were handed out to individual firms, which continue to engage with the RBI.  

These requests have been sent to those platforms that are yet to implement the changes as directed by the RBI or have not submitted satisfactory details.  

“We had been in touch with the RBI since last year. They have been seeking details on customer onboarding, what are the lender agreements, partnerships with other apps, and how transactions are structured. Some of the norms are misinterpreted and incorrectly followed, which we are changing,” the founder said.

P2P non-banking finance companies are the latest on the RBI’s radar after pre-paid instruments (PPIs) and digital lending. In 2017, the central bank had issued detailed regulations for the segment, with few revisions introduced in 2019.

This was topped up with FAQs for further clarity.

Besides independently offering products on their respective platforms, licensed P2P-NBFCs such as LendenClub, Lendbox, Liquiloans, Faircent, and Finzy have forged partnerships with apps including BharatPe, Cred, Mobikwik, and Vested Finance to source new customers.

As the segment is gaining traction, the regulator has stepped in to take an overview, which revealed discrepancies. This was amplified by Deputy Governor M Rajeshwar Rao, who remarked that the regulator had observed certain business practices that do not appear to be in line with its guidelines.

“NBFC-P2Ps have been observed to underplay the risks through various means such as promising high/assured returns, structuring the transactions, providing anytime fund recall facilities, etc. Let me make it clear that any breach of licensing conditions and regulatory guidelines is non-acceptable," he said.

The main issue that is annoying the regulator is the agreement between the platform and the lender, where the former is required to give all “control points” to the latter to choose the structure of the loan. This includes details on the borrower's identity, loan amount and tenure, and credit score, which must be given by the platform, followed by a unique agreement for each borrower.

As per the industry officials, few platforms have been practicing otherwise. The platforms are pooling a large sum from lenders with blanket consent and disbursing loans.

The RBI does not want an NBFC-P2P entity to lease out its licence to partner entities for business.

RBI’s close monitoring of P2P platforms has had multiple developments over the years. P2P startups are regulated as non-banking financial companies (NBFC-P2Ps) and therefore are required to regularly share updates with the RBI.