The Reserve Bank of India (RBI) has tightened norms for non-banking financial company-peer to peer lending platforms (NBFC-P2P Lending Platform), barring them from taking any credit risk, offering credit enhancement or providing guarantees.

The regulator felt the need for tighter control and greater transparency as it observed that some of these platforms were adopting certain practices which violated existing regulations. 

In the revised guidelines, the RBI said a P2P platform should not promote peer-to-peer lending as an investment product with features like tenure-linked assured minimum returns, liquidity options, etc.

“NBFC-P2P shall not assume any credit risk, either directly or indirectly, arising out of transactions carried out on its platform. In other words, entire loss of principal or interest, or both, if any, in respect of funds lent by lenders to borrowers on the platform shall be borne by the lenders and adequate disclosures to this effect shall be made to lenders,” the RBI said in its notification issued today.

The revised norms come into effect immediately.

An NBFC-P2P lending platform should not cross-sell any insurance product, which is in the nature of credit enhancement or credit guarantee.

P2P platforms are now required to disclose on its website the portfolio performance, including the share of non-performing assets (NPAs) on a monthly basis and segregation by age. “It may be noted that such disclosures shall also include all losses borne by the lenders on principal or interest, or both,” the RBI said.

No loan should be disbursed unless lenders and borrowers are matched or mapped as per the board-approved policy, the regulator added.

P2P platforms connect borrowers and lenders online, bypassing traditional institutions for direct transactions. Estimated at a size of Rs 7,000-8,000 crore, this form of lending is very small in size compared to traditional banking but is growing.

The RBI issued guidelines for P2P lending in 2017. However, some of these platforms have adopted certain practices which were violative of the provisions of Master Direction 2017, the RBI said.

"Such practices include, among others, violation of the prescribed funds transfer mechanism, promoting peer-to-peer lending as an investment product with features like tenure linked assured minimum returns, providing liquidity options and at times acting like deposit takers and lenders instead of being a platform," it added.

In view of violations by some entities, the RBI today issued amended guidelines.