RBI cracks whip on peer-to-peer lenders over violation of rules and misselling: Report

The banking regulator carried out inspections on a minimum of 10 lenders in the rapidly expanding sector from June to September, the report said citing sources.

The sources further mentioned that some lenders have already initiated the cessation of specific services and practices in alignment with the directives from the central bank.

Non-compliance with these instructions could potentially result in future penalties or restrictions.

The regulators identified a range of violations and questionable practices during their inspections, such as inappropriate relending of repaid funds and the promotion of products falsely presented as alternatives to bank deposits, the Reuters report said.

Peer-to-peer lending, a practice that bypasses traditional banks and financial institutions by connecting individual lenders with borrowers, has witnessed global growth, reaching $407 billion in the previous year, reports Future Market Insight.

However, various countries, including China and Indonesia, have recently imposed restrictions on the activities of these platforms due to significant defaults and consumer complaints.

According to regulatory inspections, some Indian peer-to-peer lenders were found to be artificially inflating their transaction volumes by improperly permitting other financial institutions to lend through their platforms, as disclosed by a senior executive at a peer-to-peer lending firm, the Reuters reports said.

Further, the Central bank instructed lenders to refrain from marketing their platforms as alternatives to bank deposits, a practice deemed as mis-selling by regulators.