Peer To Peer Lending By a Non-Banking Financial Company

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Lately, in 2017, directions have been issued by RBI for carrying on Peer to Peer Lending via NBFC’s. Now it can only be done when an NBFC has applied for such P2P Lending License.

Every such company seeking registration with the RBI as an NBFC-P2P shall have a net owned funds of not less than Rs 20 million or such higher amount as the bank may specify.

Also, those who are existing doing the P2P Lending business are asked to get such license or apply for the same within 3 months of issue of the notification.

These directions issued by RBI will be known as the Non-Banking Financial Company - Peer to Peer Lending Platform (Reserve Bank) Directions, 2017, and will come into force with immediate effect.

What Is P2P Lending In India?

P2P Lending is mainly concerned with crowd-funding which is used to raise loans from those who want to invest and which are paid back with interest. It is an online platform which connects lenders with borrowers to provide unsecured loans.

Under this, the borrower can either be an individual or a legal person. The interest rate may either be set by the platform or mutual agreement between the borrower and lender.

-          Providing an online marketplace for participants in case of lending & borrowing
-          Undertake credit assessment & risk analyzing.
-          Documentation of loan agreement & other necessary formalities.
-          Settling up a mechanism for disbursal & renewal of the loan.
-          Assistance in the recovery of loans
-          Thorough Due diligence of the process
-          Scrutiny & Vetting of documentation involved.

Prohibitions?

-          Prohibition on raising deposits under Sec 45I (BB) of the Act;
-          Prohibition on lending on its own.
-          Restrictions on the international flow of funds
-     Restrictions on cross-sell of products i.e. Loan Specific insurance products.
-      Prohibited from holding, on its own balance sheet, funds received from lenders for lending, or funds received from borrowers for servicing loans;

Fund Transfer Mechanisms?

On the P2P lending platform, fund transfer between participants will happen through escrow account mechanisms. All fund transfers shall be through bank accounts, and cash transactions are strictly prohibited in such case.

Prudential Norms?

-          The aggregate exposure of a lender to all borrowers at any point of time, across all P2Ps, shall be subject to a cap of Rs 10 lakh.
- The aggregate loans taken by a borrower at any point of time, across all P2Ps, shall be subject to a cap of Rs 10 lakh.
-     The exposure of a single lender to the same borrower, across all P2Ps, shall not exceed Rs 50,000.
-          The maturity of the loans shall not exceed 36 months.
P2Ps shall obtain a certificate from the borrower or lender, as applicable, that the limits prescribed above are being adhered to.
-    No loan shall be disbursed unless the individual lender/s have approved the individual recipient/s of the loan and all concerned participants have signed the loan contract.
-      The interest rate displayed must be in Annualized Percentage Rate format.

Fair Practices Code:

The platform shall not provide any assurance for the recovery of loans. Further, the platform shall display a caveat that “Reserve Bank of India 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”.