Peer-To-Peer Lending Practises Are Controlled By The India Central Bank

According to the sources, who are all industry executives, the Reserve Bank of India, which is also the country's banking regulator, inspected at least ten lenders in the rapidly expanding sector between June and September. Due to the confidential nature of their discussions with the regulator, they declined to be identified.

In accordance with the central bank's recommendations, they further stated that certain lenders had already initiated the cessation of particular services and practises; noncompliance could result in subsequent penalties or restrictions.

There was no response from the Reserve Bank of India to a request for comment. In India, out of a total of 24 lending platforms, the six largest failed to provide a response.

According to the sources, the regulators discovered numerous unethical practises and violations, such as the improper lending of repaid funds and the promotion of products as substitutes for bank deposits.

India's regulatory bodies have heightened their examination of swiftly expanding consumer finance services, such as peer-to-peer lending, the value of which is estimated by industry executives to be between 80 and 100 billion rupees ($960 million and $1.20 billion) in assets under management.

In light of personal loan disbursements, regulators have recently increased capital requirements for lenders, including non-bank financial institutions.

According to a report by Future Market Insight, peer-to-peer lending, which circumvents banks and financial institutions by connecting individual borrowers and lenders, has increased to $407 billion worldwide as of last year.

However, in recent years, a number of nations, including China and Indonesia, have curtailed the activities of these platforms in response to widespread defaults and consumer complaints.

According to one of the sources, the regulatory examinations uncovered instances wherein peer-to-peer lenders in India increased their transaction volumes by unauthorised access to their platforms for lending by other financial institutions.

According to the source, who is a senior executive at a peer-to-peer lender, the central bank instructed lenders to cease misrepresenting their platforms as a substitute for bank deposits in their marketing materials.

"RBI has categorically told us not to compare the product with savings or fixed deposits," according to a source.

Additionally, according to the four sources, certain lenders were reimbursing borrowers' repaid funds automatically without the lender's consent; this practise violated banking regulations.

"In certain instances, P2P lenders deviated from the intended purpose of the P2P lending guidelines, which is for the platform to function solely as a marketplace," according to Rohan Lakhaiyar, partner at the financial services risk division of Grant Thornton Bharat.