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Tag: RBI concerns

  • RBI Probes E-Wallets After BluSmart Collapse Leaves Users Stranded

    According to various media reports, India’s central bank is investigating some digital wallets linked to electric vehicle companies after the abrupt demise of the nation’s biggest all-EV taxi service prevented customers from accessing funds linked to their accounts.

    The issues encountered by customers of the digital wallet of the app-based ride-hailing service BluSmart led to a review of the payment methods utilised in India’s nascent EV ecosystem.

    The incidents brought about by the company’s alleged fraud exposed the absence of protections for customers who deposit funds into so-called closed-loop wallets in order to conduct transactions on apps, particularly those that deal with EVs like charging stations or ride-booking.

    RBI Putting its Strict Scanner

    According to various published reports, the Reserve Bank of India has started informal conversations with operators of EV charging stations and other app-based EV platforms in order to evaluate potential consumer hazards.

     In India’s rapidly expanding digital services ecosystem, so-called closed-loop wallets—app-based payment systems that are limited to use on a single platform—have become widely available. Since the central bank does not actively supervise these wallets like it does open-system wallets under its regulation, they are more susceptible to platform failure.

     In April, BluSmart informed customers that it could take up to 90 days to reimburse money after thousands of users who had preloaded money into the wallet to book trips within the city and at the airport were unable to secure a refund or move the money to another location.

    Probable Steps RBI Could Take to Enhance E-Wallet Securities

    In the upcoming weeks, the central bank is reportedly considering meeting with the parties. To guarantee that money is safeguarded in the event that a business closes, the bank can suggest requiring escrow arrangements for customer balances, much like those that are necessary for payment aggregators.

     According to a media report, another proposal is to apply some aspects of the RBI’s Prepaid Payment Instruments (PPI) guidelines to large-scale closed wallets.

    Although the regulator has not yet made a formal decision, any action to tighten regulation of app-specific wallets may have far-reaching effects on India’s digital economy, as platforms mostly depend on prepaid balances to increase stickiness and encourage recurring use.

    Gensol Founders Anmol & Puneet Singh Jaggi Step Down

    Almost a month after market regulator SEBI prohibited them from holding important roles within the firm, Gensol Engineering Ltd said on May 12 that Anmol Singh Jaggi, the managing director, and Puneet Singh Jaggi, the full-time director, had resigned.

     In his letter of resignation, Anmol Jaggi stated that he would be leaving his position as Managing Director of Gensol Engineering Limited effective May 12, 2025, at the end of business hours. Additionally, he announced his resignation in response to the directive issued under the SEBI Interim Order on April 15, 2025.

    He would want to use this occasion to express his gratitude to the whole Board, the Management Team, and the Company’s workers for their cooperation and support throughout his tenure.

  • HDFC Bank Faces INR 75 Lakh Fine from RBI for Defying Customer KYC Instructions

    The Reserve Bank of India (RBI) fined HDFC Bank INR 75 lakh after discovering that the bank had not followed certain of the guidelines outlined in the RBI’s Know Your Customer (KYC) master guidance. Notably, the RBI is referring to a KYC master circular that was last modified on November 6, 2024, having been issued on February 25, 2016. In a March 26, 2025, press release, the RBI said that HDFC Bank Limited (the bank) had been fined INR 75.00 lakh (Rupees Seventy-Five Lakh only) by an order dated March 24, 2025, for failing to comply with specific guidelines the RBI had given regarding “Know Your Customer (KYC).” In accordance with Section 47A(1)(c) read with Section 46(4)(i) of the Banking Regulation Act, 1949, the RBI was granted the authority to impose this penalty.

    How it all Begin?

    The RBI went on to clarify in its statement that the bank’s financial status as of March 31, 2023, was the subject of a Statutory Inspection for Supervisory Evaluation (ISE 2023) of the bank. A notice was sent to the bank asking it to provide justification for why it should not be penalised for its failure to follow the RBI’s instructions, based on supervisory findings of non-compliance and related correspondence. The RBI made it clear that this financial penalty is specifically tied to regulatory compliance shortcomings and has nothing to do with the legitimacy of any transactions or agreements the bank has made with its clients. Furthermore, the penalty has no bearing on any further actions the RBI may take against HDFC Bank.

    HDFC Fails to Provide Satisfactory Response

    In its official statement, the RBI stated that, among other things, it determined that the following charges against the bank were upheld, justifying the imposition of a monetary penalty, after taking into account the bank’s response to the notice and other submissions made by the bank. Based on its evaluation and perception of risk, the bank did not assign some of its customers to the low, medium, or high risk categories. Rather than assigning a Unique Customer Identification Code (UCIC) to every customer, the bank assigned numerous UCICs to certain consumers.

    Why Banks Need to Follow RBI’s KYC Guidelines?

    Reiterating the January 2004 instructions, the “Know Your Customer” guidelines were released in February 2005 in response to the Financial Action Task Force’s (FATF) recommendations on combating the financing of terrorism (CFT) and anti-money laundering (AML) standards. These guidelines are now the global norm by which regulatory bodies formulate anti-money laundering and anti-terrorism funding strategies. International financial ties now require that the nation’s banks, financial institutions, and NBFCs adhere to these requirements. The Reserve Bank’s Department of Banking Operations and Development has provided banks with comprehensive guidelines based on the Financial Action Task Force’s recommendations and the Basel Committee on Banking Supervision’s paper on Customer Due Diligence (CDD) for banks, with indicative suggestions where deemed necessary. NBFCs are equally subject to these rules.

    Therefore, it is recommended that all NBFCs adopt it with appropriate modifications based on their activities and make sure that, within three months of the date of this circular, a proper policy framework on “Know Your Customer” and anti-money laundering measures is developed and implemented with the Board’s approval. Before December 31, 2005, NBFCs were urged to make sure they were completely in compliance with the guidelines.

  • How RBI’s Strict Scrutiny Changed the Demographics of P2P Lending?

    Following a “scrutiny” of “select NBFC-P2P companies” from June to September 2023, the Reserve Bank of India (RBI) discovered “multiple violations” of the regulations established in October 2017, when the licensing standards were published, to welcome these companies to the Indian financial market.

    It was preceded by the RBI’s March 2016 release of the initial P2P lending draft for stakeholder comment. In addition to meeting the criteria for being “fit and proper” to operate P2P platforms, a minimum of around 2 crore net-owned money is required according to the licensing standards.

    Although not all of the approximately 25 licenses issued by the RBI have gone live, some of them have. Approximately one-third of the fifteen entities that went live have now gone dark. According to analysts, the industry’s outstanding loan book is estimated to be over 6,000 crore, and four companies control more than 90% of the market.

    A loan of approximately 10 lakhs could be made at the outset. The amount increased to over 50 lakhs in December 2019. Through P2P platforms, a lender can distribute this funding to numerous borrowers. But regardless of how many lenders there are, a borrower cannot receive more than ~10 lakh. The maximum amount that a lender can lose due to a single borrower is around $50,000. (A minimum of 20 lenders are required in the event that a borrower requests ~10 lakh.)

    Platforms that facilitate peer-to-peer (P2P) lending allow users to pool their savings in escrow accounts and then lend those funds to other users or small businesses without requiring collateral.

    Why Is RBI So Irritated?
    Industry Adopting a ‘Wait and Watch’ Policy

    Why Is RBI So Irritated?

    Lenders can access their money before loans are fully processed on P2P platforms. This implies that over the remaining time of the loan, a different lender will take over for the first one, without the lenders on the platform having to say anything. The “deposit-taking” feature of these NBFC-P2Ps is the root cause of loan replacement.

    Loan contracts on the platform must be signed by both the lender and the borrower in accordance with RBI regulations. But instead of that, platforms are only giving out loans to people who have lenders’ whole approval. The standards for licensing are being violated here.

    The standards that control the transfer of money are another source of worry. In order to reinvest the funds, these platforms are moving the repayments from the borrower’s escrow accounts to the lenders’ escrow accounts. Repayment funds must be sent from the borrower’s escrow account to the bank account of the lender.

    P2P platforms have been issued a stern warning by the RBI, urging them to immediately cease these actions. They risk regulatory and supervisory measures if they do not.

    Number of Peer to Peer Non Banking Financial Companies in India as of January 2022, by City
    Number of Peer to Peer Non Banking Financial Companies in India as of January 2022, by City

    Industry Adopting a ‘Wait and Watch’ Policy

    P2P Lending Platforms
    P2P Lending Platforms

    The official explained that new alliances take substantial time, technological, and legal resources to be integrated, thus the industry is simply taking a “wait and watch” approach rather than rapidly expanding.

    Liquiloans has partnered with a number of prominent P2P lenders, including Cred, Avail Finance, Uni, and BharatPe; LenDen Club has partnered with PhonePe, Karza, and BharatPe. The general pace of business has decreased, even though partnerships are still continuing. Since October, corporations have been consistently engaging with the RBI, therefore experts do not see this trend continuing.

    During an occasion, RBI deputy governor M. Rajeshwar Rao reportedly stated that NBFC-P2Ps’ actions did not seem to comply with regulatory norms. The majority of the lenders on these sites probably don’t have the training or education to properly assess the dangers of lending money.

    While the RBI first published comprehensive rules for the market in 2017, 2019 saw the introduction of certain updates to those rules. However, the central bank has been providing platforms with guidance on several aspects of compliance over the past 12 to 18 months.

    The Department of Regulation at RBI has been approached by these businesses to clarify several important matters. A decision on these practices is also required by the Department of Supervision.

    The peer-to-peer lending market is currently valued at an estimated 7,000–8,000 crore rupees. About twenty P2P licensing systems can be found in India. They are all NBFCs that have registered with the RBI.

    Payouts, processing fees, and platform fees all contribute to the platforms’ bottom lines. The maximum amount that a lender can put on a platform is Rs 50 lakh. One borrower is limited to an investment of no more than Rs 50,000.

    At no point in time should a borrower’s total loan amount exceed Rs 10 lakh. This loan has a maximum maturity term of 36 months. An annual interest rate of 36% is charged by some sites.

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    Conclusion

    The Reserve Bank of India’s intensified scrutiny of NBFC-P2P companies has revealed multiple violations of established regulations, including issues with loan processing, fund transfers, and compliance with licensing standards.

    Despite partnerships and engagement with the RBI, concerns persist regarding the industry’s compliance and operational practices. The conclusion underscores the need for stringent regulatory oversight and enhanced industry compliance to sustain the integrity and stability of the P2P lending market in India.

    FAQs

    Which is the largest P2P lending platform in the world?

    Lending Club is the world’s largest P2P platform.

    Yes, P2P lending is completely legal and fully regulated by RBI in India.

    Which P2P lending is best in India?

    Some of the most popular P2P lending platforms in India are LenDenClub, Faircent, Lendbox, etc.