RBI fines Innofin Solutions and LiquiLoans for non-compliance with regulations

A fine of Rs 1.99 crore has been imposed on Innofin Solutions, also known as LenDen Club by the Reserve Bank of India (RBI). The penalty is due to non-compliance with regulations concerning Peer-to-Peer (P2P) lending.

According to the RBI, the penalty was issued on August 21 after a scrutiny conducted by the central bank in June 2023. The scrutiny revealed the violations of the 'Non-Banking Financial Company - Peer to Peer Lending Platform Directions, 2017' and the 'Guidelines on Digital Lending.'

According to the RBI, LenDen Club failed to disclose key borrower details, disbursed loans without lender approval, violated fund transfer mechanisms by routing loan amounts through a co-lending escrow account, and allowed loan repayments to be processed through a third-party provider's nodal account.

A show-cause notice was issued to the company and after considering its responses, the RBI said that the violations warranted a monetary penalty.

Along with LenDen Club, RBI has also fined LiquiLoans an amount of Rs 1.92 Cr for flouting digital lending guidelines and provisions of the “Non-Banking Financial Company-Peer to Peer Lending Platform (Reserve Bank) Directions, 2017”.

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.  

Both the penalties were issued by the RBI in exercise of powers under the Reserve Bank of India Act, 1934.