RBI notifies peer-to-peer lending platforms to be classified as NBFCs

The Reserve Bank of India, on Wednesday, notified that peer-to-peer lending platforms would be treated as non-banking finance companies. The move brings the sector under the central bank’s regulation.

The RBI had issued a consultation paper on peer-to-peer lending in April last year and sought comments from all stakeholders on a regulatory framework.

“Although nascent in India and not significant in value yet, the potential benefits that P2P lending promises to various stakeholders and its associated risks to the financial system are too important to be ignored,” the central bank had said in the consultation paper.

Rajat Gandhi, Co-Founder and Chief Executive Officer of peer-to-peer lending platform Faircent said, “We are proponents of regulation. Our stand has been clear from the beginning that the peer-to-peer lending sector should be regulated.”

While the central bank only issued a notification on Wednesday, detailed guidelines on the same are expected in a week.

“The guidelines will be issued in a week or so, and thereafter the RBI will call for registrations.”

He added that the registration process may take some time as the regulator will need to complete its audit of the entities.

On what he was expecting from the final guidelines, Rajat said, “We are hoping for minimal disturbance to our existing business. The government is pro-business. They will come up with something that is practical and pragmatic.”

Bhavin Patel, Co-Founder and Chief Executive Officer of LenDenClub said, “This RBI notification is a welcome move and will have a positive impact on the entire sector. In our view, this RBI regulation will bring a much needed legal clarity in the system, and lenders/platform will get legal rights to take adequate steps against defaulters. Also, regulation will mean wide acceptability of this concept among lenders as well as borrowers."

Rajat added there was not enough investment in the lending space as compared with the payments space, and regulation for the sector will unlock funds. He added it will also help SMEs and MSMEs get funds they did not have access to earlier, which will create employment.