The Reserve Bank of India (RBI) has notified that peer-to-peer (P2P) lending platforms would be treated as non-banking financial companies (NBFCs).

As per RBI, P2P lending is a form of crowd-funding used to raise loans which are paid back with interest. It can be defined as the use of an online platform that matches lenders with borrowers in order to provide unsecured loans. The borrower can either be an individual or a legal person requiring a loan.

The RBI in a gazette notification to the government said,  ''The Reserve Bank of India, on being satisfied that it is necessary to do so, in exercise of the powers conferred on it by... the Reserve Bank of India Act 1934, (2 of 1934) with prior approval from the government, hereby specifies, a non-banking institution that carries on the business of a peer to peer lending platform to be a non-banking financial company.''

''P2P lending promotes alternative forms of finance, where formal finance is unable to reach and also has the potential to soften the lending rates as a result of lower operational costs and enhanced competition with the traditional lending channels. If properly regulated, the P2P lending platforms can do this more effectively,'' it added.

Bhavin Patel, co-Founder & chief executive officer, LenDenClub said, "This RBI notification is a welcome move and will have a positive impact on the entire sector. This is the first step towards regulatory regime for peer to peer lending sector.''

He further stated, ''In our view, this RBI regulation will bring a much needed legal clarity in the system, and lenders/platform will get legal rights to take adequate steps against defaulters. Also, regulation will mean wide acceptability of this concept among lenders as well as borrowers. This will fulfill RBI's expectation of taking P2P Lending to the masses of this country."

The RBI had floated a consultation paper in April 2016 on peer to peer (P2P) lending platforms. P2P lending has gathered momentum globally and is taking root in India.