RBI imposed penalties onm LenDenClub and LiquiLoan

The apex body reserve bank of india (RBI) imposed hefty penalties on fintech companies LenDenClub and LiquiLoans of 1.99 crore (~Rs 1,99,50,000) while the penalty imposed on LiquiLoans was Rs.1.92 Cr. The event was out of the consequences of non-compliance with provisions ‘Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, and “Guidelines on wallet PLATFORM' target='_blank' title='digital-Latest Updates, Photos, Videos are a click away, CLICK NOW'>digital Lending” issued by RBI.

“The penalty has been imposed in exercise of powers conferred on RBI under the powers conferred on RBI under the provisions of clause (b) of sub-section (1) of section 58G read with clause (aa) of sub-section (5) of section 58B of the reserve bank of india Act, 1934,” RBI stated in a release.

Both RBI scrutinized the companies in june 2023 and a show cause notice was issued asking the company why not to impose the penalty. Based on the reply and additional documents submitted by the companies, proceedings were decided.

LenDenClub (Innofin Solutions Pvt. Ltd.) and LiquiLoans (NDX P2P Pvt. Ltd.)
The companies have violated the provisions and failed to disclose the details of lenders and borrowers while disbursing loans without any prior check. At the same time, the company has routed the loans and collected its P2P Platform through a ‘co-lending escrow account’ in violation of the laid down ‘Fund Transfer Mechanism.

The company with the help of a nodal account of a third party, allowed the repayments on these Merchant finance loans. This third party took partial credit risk to avoid service fees which does not fall into the ambit of the provision laid by RBI on NBFC-P2P companies.

RBI on NBFC-P2Ps
In recent developments, RBI on NBFC-P2Ps has specifically restrained NBFC-P2Ps from providing any credit enhancements or assurances and credit risk transaction fees. This in simple words means the entire loss of principal or interest or even both, arises in respect of borrowed funds lent by lenders to borrowers on the P2P platform, it will be the responsibility of the lender to bear it.

RBI also has restricted any sort of sale of insurance products that involve credit risk assurances. The fintech company with this ban is going to face operational challenges which could reduce investor appeal and increase compliance costs of the company. This could shrink the investor base.
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Balasahana Suresh

25/08/2024 03:37 PM