The Reserve Bank is waiting for a gazette notification from the government on getting the peer-to-peer lenders under its regulatory ambit before coming out with guidelines on the sector, a senior official said today. “Following up on the consultation paper we did last year, we are shortly going to come up with guidelines on peer to peer lending,” RBI’s executive director Sudarshan Sen said at an industry event here. The consultation paper on p-2-p lending was released by RBI in April last year, but the final guidelines are yet to come.
Sen said a notification from the government is the missing part which is preventing the RBI from releasing the final guidelines. “First, we need the government to notify p-2-p platforms as an entity to be regulated by RBI. That requires a gazette notification. Once that happens, we come out with regulation,” he said. Sen added that the legislative change for the same has already come in and it is only a gazette notification that is required.
A June 29 report quoting top finance ministry sources had said that RBI will come out with the final guidelines in 2-3 weeks. “We have given our comments to the RBI. The guidelines should be out soon. The norms will be out before July-end,” the official had said. He also said the finance ministry has recommended that these platforms be registered as non-banking financial institutions. “P2P platform needs to be regulated by the RBI so as to ensure players play by the rule,” the official said.
According to the official, the P2P lending interface will come under the purview of RBIs regulation by defining these platforms as NBFCs under the RBI Act by issuing a notification in consultation with the government. The proposed regulatory framework would encompass the permitted activity, regulations on capital, governance, business continuity plan and customer interface, apart from regulatory reporting, the official added.
“Although nascent in India and not significant in value yet, potential benefits that P2P lending promises to various stakeholders (to borrowers, lenders, agencies etc) and its associated risks to the financial system are too important to be ignored,” the consultation paper said. P2P lending is a form of crowd-funding used to raise loans which are paid back with interest. It can be defined as the use of an online platform that matches lenders with borrowers in order to provide unsecured loans.
The borrower can either be an individual or a legal person requiring a loan. The interest rate may be set by the platform or mutual agreement between the borrower and the lender. Fees are paid to the platform by both the lender as well as the borrower. Borrowers pay an origination fee — either a flat rate fee or as a percentage of the loan amount raised — according to their risk category.
The lenders, depending on the terms of the platform, have to pay administration and additional fees if they choose to use any additional service for example, legal advice, which the platform may provide.