Private loans in India: from RBI-registered P2P platforms to family lending

The shape of non-bank lending in India

India has one of the largest non-bank credit sectors in the world. Non-banking financial companies (NBFCs) supply personal, gold and vehicle loans; cooperative banks and credit societies serve towns and villages; and fintech apps distribute credit on behalf of regulated lenders through partnership models.

The Reserve Bank of India (RBI) regulates banks, NBFCs and urban cooperative banks, while state governments license traditional moneylenders and register many cooperative societies. Knowing which authority covers a lender is the first step in judging whether a loan offer is lawful.

Peer-to-peer lending under NBFC-P2P rules

Since 2017, P2P platforms must hold an NBFC-P2P registration from the RBI. Platforms such as LenDenClub, Faircent or i2iFunding match individual lenders with borrowers but may not lend from their own balance sheet, guarantee returns or hold money outside a regulated escrow account.

Exposure limits that shape P2P loans

RBI directions cap a lender's aggregate exposure across all platforms at ₹50 lakh, a borrower's total P2P borrowing at ₹10 lakh, and a single lender's exposure to one borrower at ₹50,000. Loan tenure is limited to 36 months, which keeps P2P credit small and diversified.

What changed with the 2024 amendments

Revised directions in August 2024 banned platforms from promoting P2P as an investment product with assured returns, prohibited credit enhancement, required funds to move through escrow within a single business day, and obliged platforms to disclose their fees upfront to both sides of each loan.

Cooperatives, microfinance and self-help groups

Primary agricultural credit societies, urban cooperative banks and employee credit societies lend to members, often at moderate rates. Self-help groups linked to banks pool savings and borrow collectively, giving many rural women access to formal credit for the first time.

Microfinance safeguards

Under the RBI's 2022 microfinance framework, collateral-free loans to households with annual income up to ₹3 lakh are capped so that total repayments do not exceed half of monthly household income. Lenders must publish pricing and avoid coercive recovery practices.

Licensed moneylenders and state laws

Private moneylending is legal only with a state licence. Laws such as the Maharashtra Money-Lending (Regulation) Act 2014 or the Karnataka Money Lenders Act set maximum rates notified by the state government, require receipts and ledgers, and criminalise harassment during recovery.

Digital lending apps

RBI digital lending directions require loans to be disbursed directly into the borrower's bank account, a Key Fact Statement showing the APR before signing, and a cooling-off period. Apps not linked to a regulated lender operate illegally and have been linked to abusive collection.

Family loans and tax rules

Borrowing from parents or siblings is widespread, especially for weddings, education and property deposits. A loan is not income for the borrower, but documentation matters because tax officers may question unexplained credits in a bank account during scrutiny assessments.

Cash limits and interest income

Income-tax law has long prohibited accepting a loan of ₹20,000 or more in cash, with penalties equal to the amount received. Family loans should therefore travel by bank transfer or cheque. Any interest paid is taxable income for the relative who lends.

Steps to borrow privately and safely

The following sequence suits most borrowers comparing P2P, NBFC, cooperative and family options. It also creates the paper trail that protects both sides if a dispute, a tax query or a recovery problem arises months or years after the money first changed hands.

1. Check your credit report from CIBIL, Experian, Equifax or CRIF High Mark.
2. Confirm the lender's RBI registration or state moneylending licence.
3. Read the Key Fact Statement and compare APRs, not flat rates.
4. On P2P platforms, check the fee schedule and escrow arrangements.
5. Ask for a written agreement and receipts for every payment.
6. Route family loans through bank accounts with a simple loan note.
7. Report illegal lenders on the RBI's Sachet portal or to the cyber-crime helpline.

Common mistakes and red flags

Fraud often mimics the branding of well-known NBFCs or claims RBI approval it does not have. The patterns below recur across complaints from borrowers in metro and rural India alike, and most can be spotted before any money or personal data is handed over.

• Paying a "file charge" or "GST deposit" by UPI to a WhatsApp contact before disbursal: regulated lenders deduct processing fees from the sanctioned amount.
• Installing loan apps that demand access to contacts and photos.
• Comparing a flat monthly rate with a reducing-balance APR.
• Taking a cash loan from a relative above the legal cash limit.
• Borrowing from an unlicensed moneylender who refuses receipts.

Is P2P lending legal in India?

Yes, provided the platform holds an NBFC-P2P certificate from the RBI. Unregistered peer-to-peer websites, social-media lending groups and chit-style schemes that pool money without the required registration fall outside this framework and offer no regulatory protection.

Is there a legal interest rate cap in India?

RBI does not fix a ceiling for NBFC loans, but requires board-approved pricing policies and transparent APR disclosure. State moneylending acts and usurious-loan legislation do set maximum rates for licensed moneylenders, and courts can reopen excessive transactions.

Can NRIs lend to relatives in India?

Foreign-exchange rules allow resident individuals to borrow from close relatives abroad within limits and conditions set under FEMA, usually through banking channels. Terms such as interest and tenure must comply with RBI rules, so an authorised dealer bank should be consulted first.

Where can over-indebted borrowers complain?

Complaints against banks, NBFCs and P2P platforms go first to the lender's grievance officer, then to the RBI Integrated Ombudsman Scheme. Harassment by illegal apps or unlicensed moneylenders should be reported to the police and the national cyber-crime reporting portal.

By Nabil Frik · Updated 13 October 2026