The Reserve Bank of India (RBI) has announced stringent new guidelines aimed at curbing malpractices and protecting investor interests.
According to Reuters, the fresh regulations, effective immediately, prohibit P2P platforms from assuming credit risks, offering credit enhancements, or guarantees. This directive ensures that lenders bear the entire loss of principal, interest, or both in transactions.
The RBI’s decision comes as a response to several P2P platforms violating existing norms. By sidestepping traditional banking channels, these platforms connect individual lenders directly with borrowers. However, under the new framework, these platforms are also restricted from cross-selling insurance products related to credit enhancements or guarantees. Additionally, P2P platforms cannot promote their services as investment products and must disclose all potential losses that lenders might incur on both principal and interest.
“The entire loss of principal or interest or both, if any, in respect of funds lent will be borne by the lenders,” the central bank stated. This measure is part of the RBI’s broader strategy to intensify scrutiny of rapidly growing consumer finance services, including P2P lending, to prevent systemic risks and enhance consumer protection.
RBI’s tightened norms also stipulate that P2P platforms must not use lender funds to replace funds of another lender, ensuring a clearer and more transparent operational approach. This regulatory overhaul reflects the central bank’s commitment to a more stable and secure financial environment in the FinTech sector.
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