The Reserve Bank of India (RBI) has issued directions that will govern the workings of non-banking financial companies (NBFCs) engaged in peer-to-peer (P2P) lending.
The directions, which provide a framework for the registration and operation of NBFC-P2Ps in India, will come into force with immediate effect.
The RBI has said that no non-banking institution other than a company can undertake P2P lending without obtaining a certificate of registration from it. Besides, every company seeking registration should have a net-owned fund of not less than Rs 2 crore, or as specified by the RBI. However, the regulator has given a breather to existing players—they can apply for registration as an NBFC-P2P within three months.
The RBI has clearly defined the scope of activities for NBFC-P2Ps as well. According to the norms, they should act as an intermediary providing an online marketplace or platform to the participants involved. However, they are not supposed to raise deposits, not lend on their own, not provide or arrange any credit guarantee, not facilitate or permit any secured lending linked to their platform and not hold, on their balance sheet, funds received from lenders for lending. Besides, they are not allowed to cross-sell any product except for loan-specific insurance products, and nor are they permitted to facilitate international flow of funds.
An NBFC-P2P is also supposed to undertake due diligence on the participants, do credit assessment and risk-profiling of borrowers, seek explicit consent of the participant to access its credit information, undertake documentation of loan agreements, provide assistance in disbursement and repayment of loan amount, and render services for loan recovery.
Besides, the NBFC-P2P should maintain a leverage ratio not exceeding 2, and 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 as well. The exposure of a single lender to the same borrower, across all P2Ps, has been capped at Rs 50,000. The maturity of the loan should not exceed 36 months.
Any fund transfer between the participants on a P2P lending platform shall be through an escrow account, which will be operated by a trustee. At least two escrow accounts, one for funds received from lenders and pending disbursal, and the other for collections from borrowers, shall be maintained.