The China Banking and Insurance Regulatory Commission (CBIRC) on Saturday issued draft rules on commercial banks' online lending business, banning the use of such loans for riskier investments and capping banks' online consumer credit, in a move to rein in financial risks.

Compared with the traditional offline loaning, the online lending in China has played a positive role in improving loan efficiency, innovating means of risk assessment, and expanding their client bases with the help of the likes of big data and automatic operation online, but at the same time, exposing problems, including the inadequacy in risk management, consumer protection and monitor of fund usage, CBIRC said in a statement.

The draft rules were issued to solicit public opinions in order to standardize the online loan business of commercial banks and promote the steady and healthy development of online lending business, the CBIRC said.

The commercial banks' online loans should be small in amount and short in terms with high efficiency and controllable risks, it added.

The rule explicitly forbids to purchase property, stocks, bonds, futures, financial derivatives, and asset management products and make other riskier investments with bank loans issued online, warning that "if it is found that the purpose of the loan is illegal or not used according to the agreed purpose, measures shall be taken to recover the loan in advance."

Also, banks should cap online consumer credit lines for each client, according to the rule,  at 200,000 yuan (about 28,249 U.S. dollars), adding that the credit extension period shall not exceed one year if the principal is repaid in a lump sum upon maturity, as the cap will help prevent the risk of rapidly expanding household debt.

Though the rules have not restricted the establishment of uniform quantitative indicators for local commercial banks to carry out cross-regional Internet loan business, the banks are required to conduct such business prudently based on their own risk control capability and build a comprehensive risk management system for online lending business.

Meanwhile, the regulator tightened its regulation on the co-lending business between banks and micro-lenders and banned banks from co-lending to customers with institutions that don't have proper lending licenses.

(With input from Reuters)