P2P Lending in India: RBI Rules and the Risk Explained

Peer to peer lending in India is legal and it is regulated by the Reserve Bank of India. It is also not a deposit. The most any one lender is allowed to put behind any one borrower is Rs 50,000, the platform is forbidden from promising you that money back, and if the borrower stops paying, the entire loss is yours. That is the honest answer to the advertisement you just saw.

Everything on this page comes from one document: the Master Direction - Non-Banking Financial Company - Peer to Peer Lending Platform (Reserve Bank) Directions, 2017. The Reserve Bank rewrote large parts of it on 16 August 2024, after platforms started selling P2P as a savings product with assured returns and instant withdrawal. The consolidated text now on the RBI website is the version updated as on 27 February 2025. Where a paragraph number appears below, it is the paragraph of that Master Direction, so you can check the wording yourself.

One caution before you read on. This page does not name platforms and does not repeat anybody's advertised return. A return rate you see in an ad is a hope, not a rule. The rules are what follow.

Start here, not with the returns. There are four distinct failures, and they are not variations of the same thing.

1. The borrower simply stops paying. This is the ordinary case, and the Master Direction is blunt about who eats it. Paragraph 6(1) says an NBFC-P2P shall not provide or arrange any credit enhancement or credit guarantee and shall not assume any credit risk, either directly or indirectly, and then spells out the consequence:

Entire loss of principal or interest or both, if any, in respect of funds lent by lenders to borrowers on the platform shall be borne by the lenders.

There is no security behind the loan either. The same paragraph says a platform shall not facilitate or permit any secured lending linked to its platform, so only clean loans are allowed. There is no house, no gold and no vehicle to sell if the borrower disappears. Paragraph 4(1)(iii) defines a non performing asset as a loan where interest or principal is overdue for more than 90 days, so you will usually know something has gone wrong about three months after it did.

2. The platform itself shuts down. The rules require planning for this. Paragraph 14(3) requires a Board approved Business Continuity Plan for safekeeping of information and documents and for servicing of loans for the full tenure in case of closure of the platform. Paragraph 14(5) requires reasonable arrangements so that loan agreements continue to be managed and administered by a third party if the company stops carrying on P2P activity. Read that carefully. It is a rule about who administers the paperwork. It is not a promise that anyone will hand your money back. The RBI itself makes the point in paragraph 12(6), which orders every platform to display this caveat prominently on its website and app:

It is an NBFC-P2P lending platform registered with the Reserve Bank. However, Reserve Bank does not accept any responsibility for the correctness of any of the statements or representations made or opinions expressed by the NBFC-P2P and does not provide any assurance for repayment of the loans lent on it.

If you cannot find that sentence on a platform you are about to use, that is your first red flag.

3. You cannot get out early. Your money is inside a loan contract with a stranger, and the only thing that ends it is that stranger repaying. Paragraph 7(5) allows a maturity of up to 36 months, so money you commit can be tied up for three years. Paragraph 12(2) goes further and forbids a platform from promoting peer to peer lending as an investment product with features like tenure linked assured minimum returns or liquidity options. In plain words, the RBI has specifically banned the very exit button that made these products feel like a savings account. Anything that still looks like one deserves suspicion.

4. The comfort you were shown may not be allowed. Guarantee funds, protection pools, first loss cover and buy back arrangements are all forms of credit enhancement, and paragraph 6(1) bans them. The same paragraph closes the side door: a platform shall not cross sell any product except loan specific insurance products, and shall not cross sell any insurance product which is in the nature of credit enhancement or credit guarantee. An insurance policy dressed up as a safety net for your principal is not permitted.

Every one of these limits is worded as applying across all P2P platforms, not per platform. Opening five accounts does not multiply your allowance.

Now the part nobody advertises. Paragraph 7(6) says the platform shall obtain a certificate from the borrower or lender, as applicable, that the limits prescribed above are being adhered to. No platform can see your accounts on a rival platform. The cross platform caps therefore rest largely on a declaration you sign. If you lend on three platforms and each thinks the Rs 50,000 per borrower ceiling is its own, the person who breached the rule is you.

The Rs 2 crore figure is worth a second look from the other side of the table. The RBI's own frequently asked questions on NBFC-P2P, updated as on 3 September 2025, confirm that the capital must be infused before the certificate of registration is issued, and that an existing NBFC cannot simply start operating as an NBFC-P2P. Two crore is the entry ticket for the company. It is not a cushion held against your loans.

The escrow mechanism is the single most important thing to understand, because it is what stops your money from becoming the platform's working capital.

1. You transfer money from your own bank account into the Lenders Escrow Account. Paragraph 9(i) requires at least two escrow accounts, and both are operated by a bank promoted trustee, not by the platform.
2. Nothing may be disbursed until the matching is done properly. Paragraph 8(3) says no loan shall be disbursed unless the lender and borrower have been matched under a Board approved policy, the individual lender has approved the individual recipient of the loan, and all participants have signed the loan contract. A platform that sweeps your money into a pool and decides later has broken this rule.
3. Money leaves the Lenders Escrow Account only to the specific borrower's own bank account. Cash transactions are strictly prohibited.
4. The borrower repays into a separate Borrowers Escrow Account, and money moves from there only to the respective lender's bank account. Funds in the lenders account may not be used to repay loans, and funds in the borrowers account may not be used to disburse loans. The two pipes never cross.
5. Nothing may sit in either escrow account beyond T plus 1 day, where T is the day the funds arrive. Paragraph 9(ii) says this, and it became effective from 15 November 2024. The RBI's FAQ clarifies that T plus 1 means T plus 1 bank working day.

That T plus 1 clock is the quiet hero of the 2024 amendment. Idle money parked in escrow for weeks was how some platforms manufactured the feeling of an always available balance. Now it has to move or go back.

Two related bans sit alongside it, both in paragraph 6(1). A platform shall not deploy lenders funds in any manner other than as specified in the Directions, and shall not utilise the funds of one lender to replace another lender. Together those two lines outlaw the practice of paying an exiting lender with a new lender's money. If a platform offers you an instant exit, ask where the cash for that exit comes from.

Four changes matter to you as a saver, and all four are now visible in the consolidated text.

• Guaranteed returns are gone. No credit enhancement, no credit guarantee, no assumption of credit risk by the platform, direct or indirect.
• Your money cannot be deployed before it is matched. Funds must sit against a named borrower you approved, not in a general pool.
• Escrow money must move within T plus 1 bank working day, effective 15 November 2024.
• Insurance cannot be used as a workaround. Only loan specific insurance may be cross sold, and never an insurance product that is in the nature of credit enhancement or credit guarantee.

Alongside these, paragraph 11(3) requires interest rates on the platform to be displayed as an Annualised Percentage Rate, and paragraph 8(4) requires fees to be disclosed at the time of lending itself, as a fixed amount or a fixed proportion of the principal, and never dependent on whether the borrower repays. Paragraph 11(1)(iii) requires the platform to publish on its website, every month, its portfolio performance including the share of non performing assets segregated by age, and expressly including all losses borne by lenders on principal or interest or both. That monthly disclosure page is the most useful thing on any P2P website and the least visited.

No, and there are two independent reasons, either of which is enough.

First, there is no deposit. Paragraph 6(1) of the Master Direction says an NBFC-P2P shall not raise deposits and shall not lend on its own. It is a marketplace. Your money is a loan you made to another person, not a sum placed with an institution.

Second, even money placed with an NBFC would not qualify. The Deposit Insurance and Credit Guarantee Corporation lists what it does not cover, and the first item on that list is deposits mobilised by a Non-Banking Financial Company. The DICGC cover of Rs 5,00,000 for principal and interest together applies to each depositor in an insured bank, and the insured banks are commercial banks including branches of foreign banks in India, local area banks, regional rural banks and cooperative banks.

So the comparison that matters is not P2P versus a fixed deposit at a slightly lower rate. It is P2P versus a fixed deposit that carries a statutory Rs 5 lakh backstop that P2P does not have and is not meant to have.

Interest you earn from P2P lending is ordinary income. It is added to your total income under the head Income from Other Sources and taxed at your slab rate, exactly like bank interest. It is not a capital gain. There is no concessional rate, no indexation and no long term holding benefit, no matter how long the loan runs.

There is a timing point specific to this year. The Income-tax Act, 1961 stands repealed on 1 April 2026, and the Income Tax Act, 2025 now governs. The Income Tax Department explains that the new Act uses the concept of a Tax Year, applicable from 1 April 2026 for income earned during FY 2026-27 onwards. Practically, the return you file in 2026 for the year that ended on 31 March 2026 is still handled under the old Act and its forms, while interest you earn from 1 April 2026 falls under the new Act. The classification of the income does not change. It is still ordinary income at your slab rate.

Plan for that when you compare P2P against anything else. A headline rate quoted before tax is not comparable with a post tax return, and for a taxpayer in the higher slabs the gap between the advertised number and the number that reaches your bank account is large.

The per borrower cap of Rs 50,000 tells you what the regulator thinks this product is. It is not a place to park a retirement corpus. It is a small, spread out, high risk allocation, and the rules are written on that assumption.

1. Confirm the registration. Paragraph 5(1)(ii) bars any NBFC-P2P from commencing or carrying on this business without a certificate of registration from the Reserve Bank. The RBI publishes a list of NBFCs and asset reconstruction companies registered with it, so find the legal name of the company behind the app and confirm it appears there. Paragraph 11(4) helps you find that name: a platform must prominently state its registered name alongside its brand name at every customer touch point, including promotional material.
2. Find the mandatory caveat. The exact wording is set out in paragraph 12(6). Its absence tells you the platform is not following the basics.
3. Read the monthly NPA disclosure, including losses already borne by lenders. Paragraph 11(1)(iii) requires it to be public.
4. Check that the rate is shown as an APR and that the fee is stated before you lend, as a fixed amount or fixed proportion, and is not linked to whether the borrower repays.
5. Refuse any product that promises a guarantee, a protection fund, a buy back or an instant exit. Those are not features. Under paragraph 6(1) and paragraph 12(2) they are breaches.
6. Add up your own exposure across every platform before you sign the declaration required by paragraph 7(6). The Rs 50,000 per borrower and Rs 50 lakh overall ceilings are yours to police.

You will also be asked to sign a declaration under paragraph 12(2) stating that you have understood the risks, that the platform does not assure return of principal or payment of interest, and that there is a likelihood of loss of the entire principal. Read that declaration instead of scrolling past it. It is the most accurate document on the whole platform.

Start with the platform's own grievance process. Paragraph 13(1) requires a Board approved policy and disposal of complaints within the time set by that policy, and in any case not beyond one month from the date of receipt. Paragraph 13(2) requires the name and contact details of the Grievance Redressal Officer to be displayed on the website, and states that if the complaint is not redressed within one month, the participant may appeal to the Customer Education and Protection Department of the Reserve Bank.

There is a second, slower door that most savers never think of. The Reserve Bank is a public authority under the Right to Information Act, 2005 and has designated a Nodal Central Public Information Officer, listed on its own Right to Information page. An RTI application will not recover your money and it will not get you a private company's books, because commercial information of a third party is not what the RTI Act delivers. What it can get you is the RBI's own record: whether a complaint against a platform was received, what was done with it, whether any inspection or supervisory action followed, and the correspondence on the file. That is often the difference between a vague suspicion and something you can put in front of a consumer forum.

If you have never filed one, our RTI drafting tool will write the application in the right form, and if the first reply is evasive or silent, the first appeal builder handles the next step within the 30 day window. To see how Information Commissions have treated financial regulators before you write, browse the case-law database. For the full method, from the first application to a second appeal, The RTI Playbook walks through it end to end.

Yes. It is legal and it is regulated. A company must hold a certificate of registration from the Reserve Bank as an NBFC-P2P before it can run such a platform, and no non-banking institution other than a company may do it at all. That is paragraph 5(1) of the Master Direction. Legality is not the same as safety, though. The same Directions that make it legal also make it clear that the platform carries none of your credit risk.

No. Two reasons, and each is independent. A P2P platform is barred from raising deposits at all under paragraph 6(1), so there is nothing for deposit insurance to attach to. And separately, the DICGC's own list of what it does not cover begins with deposits mobilised by a Non-Banking Financial Company. The Rs 5,00,000 DICGC cover applies to a depositor in an insured bank. It has no application here.

No. Paragraph 6(1) forbids a platform from providing or arranging any credit enhancement or credit guarantee and from assuming any credit risk. Paragraph 12(2) says the platform shall not provide any assurance or guarantee for the recovery of loans, and shall not promote peer to peer lending as an investment product with features like tenure linked assured minimum returns or liquidity options. A rate shown to you is a possible outcome if every borrower pays on time. It is not a promise, and it cannot lawfully be presented as one.

Your loan agreements survive, because they are between you and the borrowers. Paragraph 14(3) requires a Board approved Business Continuity Plan covering the servicing of loans for their full tenure in case the platform closes, and paragraph 14(5) requires arrangements for a third party to manage and administer the loan agreements if the company ceases P2P activity. What none of that gives you is a guarantee of repayment. If borrowers stop paying during the disruption, the loss is still yours under paragraph 6(1), and the RBI's mandatory caveat in paragraph 12(6) says in terms that it provides no assurance of repayment.

Your total across all P2P platforms is capped at Rs 50 lakh, and even then only if the amount lent is consistent with your net worth. Within that, you may not have more than Rs 50,000 out to any single borrower, again counting across all platforms. If the total you have lent across platforms is more than Rs 10 lakh, you must produce a certificate from a practising Chartered Accountant certifying a minimum net worth of Rs 50 lakh. These sit in paragraphs 7(2) and 7(4). Note that Rs 10 lakh is the trigger for the certificate, and Rs 50 lakh is the net worth the certificate has to confirm.

Not as a right. There is no redemption feature in a P2P loan, and a loan can run for up to 36 months under paragraph 7(5). Paragraph 12(2) specifically bars a platform from marketing liquidity options, and paragraph 6(1) bars it from using one lender's funds to replace another lender's. Those two rules together remove the mechanism that instant withdrawal features used to run on. Treat the money as committed for the full tenure of the loan.

The interest is ordinary income taxed at your slab rate under Income from Other Sources. It is not a capital gain, so there is no concessional rate and no indexation, regardless of tenure. Report it in your return along with your other interest income. Whether tax is deducted at source depends on who the borrower is and the deduction rules that apply to that borrower, so check the platform's own tax statement and your Annual Information Statement rather than assuming nothing was deducted. From 1 April 2026 the Income Tax Act, 2025 governs, the Income-tax Act, 1961 having been repealed on that date, but the head of income and the slab treatment are unchanged.

No, and it is one of the clearest signals to walk away. Paragraph 6(1) states that a platform shall not provide or arrange any credit enhancement or credit guarantee and shall not assume any credit risk, either directly or indirectly. A protection fund, a first loss pool and a buy back promise are all credit enhancement. The same paragraph blocks the insurance route as well, permitting only loan specific insurance products and expressly forbidding the cross selling of any insurance product that is in the nature of credit enhancement or credit guarantee.

• Master Direction - Non-Banking Financial Company - Peer to Peer Lending Platform (Reserve Bank) Directions, 2017, Reserve Bank of India, consolidated text updated as on 27 February 2025, with RBI's own version history recording an update on 16 August 2024. Paragraphs cited above: 4(1)(iii), 5(1), 6(1), 7(1) to 7(6), 8(3), 8(4), 9(i), 9(ii), 11(1), 11(3), 12(2), 12(6), 13(1), 13(2), 14(3), 14(5).
• Frequently Asked Questions on Non-Banking Financial Company - Peer to Peer Lending Platform, Reserve Bank of India, updated as on 3 September 2025, on the Rs 2 crore net owned funds requirement and on T plus 1 meaning a bank working day.
• List of NBFCs and ARCs registered with the RBI, Reserve Bank of India, for checking whether the company behind a platform appears among registered NBFCs.
• A Guide to Deposit Insurance, Deposit Insurance and Credit Guarantee Corporation, on what is covered, what is not covered, the list of insured banks and the Rs 5,00,000 limit.
• Income Tax Department, e-Filing portal, on the heads of total income including Other Sources, and on the repeal of the Income-tax Act, 1961 on 1 April 2026 and the commencement of the Income Tax Act, 2025.
• Right to Information Act page of the Reserve Bank of India, listing its Nodal Central Public Information Officer.

This page explains the regulatory framework. It is not investment advice and it does not assess any particular platform. Nothing here is a recommendation to lend. Read the risk declaration the platform asks you to sign, and lend only what you can afford to lose entirely.