RBI Cracks Down On NBFC-P2P Lending Platforms, Slaps INR 4 Cr Penalties On LiquiLoans, LenDen

The Reserve Bank of India (RBI) has imposed penalties totalling around INR 4 Cr on peer-to-peer (P2P) lending platforms LenDen Club and LiquiLoans. While LiquiLoans has been fined INR 1.92 Cr, a penalty of INR 1.99 Cr has been imposed on LenDen Club. 

The two entities have been penalised for flouting digital lending guidelines and provisions of the “Non-Banking Financial Company-Peer to Peer Lending Platform (Reserve Bank) Directions, 2017”, the RBI said on Friday (August 23).

For the uninitiated, both LenDen Club and LiquiLoans have the licence to operate as NBFC-P2P lending platforms. NBFC-P2Ps act as intermediaries providing an online marketplace or platform for peer-to-peer lending. 

In a statement, the central bank said that it conducted a scrutiny of LiquiLoans in June 2023 and found non-compliance with certain RBI directions. These violations included: 

• Failure to disclose required personal details including credit assessment and risk profile of the borrowers to the prospective lenders
• Disbursal of loans without specific approval of individual lenders
• Routing the amounts disbursed and collected in loan accounts in the P2P Platform through a ‘co-lending escrow account’ in violation of the laid down “fund transfer mechanism”
• Allowed repayments in merchant finance loans to be routed through the nodal account of a third party, which was acting as a lending service provider (LSP) for the company
• Took partial credit risk by foregoing the service fee partially/ fully, which was not provided under the scope of activities for NBFC-P2P companies

Eventually, after considering the company’s reply to the notice RBI found LiquiLoans guilty of flouting NBFC-P2P lending norms. 

With regards to LenDen Club, the central bank kicked off proceedings against the company’s parent Innofin Solutions Private Ltd in June 2023 by conducting a scrutiny of the company. 

After a show cause notice and replies by the company, the RBI found LenDen Club in non-compliance with provisions of digital lending norms and NBFC-P2P lending directives. 

RBI found LenDen Club guilty of flouting following norms: 

• Not disclosing required personal details including credit assessment and risk profile of the borrowers to the prospective lenders
• Disbursing loans without specific approval of individual lenders
• Routing the amounts disbursed and collected in loan accounts in the P2P platform through a ‘co-lending escrow account’ in violation of the laid down ‘fund transfer mechanism’
• Allowing repayments in merchant finance loans to be routed through the nodal account of a third party, which was acting as a LSP for the company

The two penalties were issued by the central bank in exercise of powers under the Reserve Bank of India Act, 1934.

This comes barely a week after the RBI modified the master directions for NBFC-P2P lending platforms to crack the whip on violations and foster compliance. 

The directives tightened norms to curb certain practices such as violation of the prescribed funds transfer mechanism, promoting P2P lending as an investment product with features like tenure linked assured minimum returns, among others. 

Notably, in February this year, the RBI had reportedly dispatched emails to multiple P2P lending players, including CRED, Jupiter, BharatPe, Lendingkart and LiquiLoans, among others, seeking details such as onboarding procedures, customer profiles, agreements with lenders and IT infrastructure. 

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