The Reserve Bank of India (RBI) on Friday said that some NBFC–peer-to-peer (P2P) lending platforms were violating norms by engaging in activities that are not permitted, such as promoting P2P lending as investment products, offering liquidity options, and at times functioning as deposit takers and lenders rather than merely acting as platforms, among others. These violations prompted the regulator to revise some of the guidelines on the issue.
“Such violations, when observed, have been dealt with bilaterally by the Reserve Bank of India for remediation,” the regulator said.
According to the RBI, NBFC–P2P lending platforms are supposed to act as intermediaries providing an online marketplace to the participants involved in peer-to-peer lending.
As a result, the RBI has amended certain guidelines and added new provisions to the master directions governing these entities to ensure proper implementation of directions in this space. The amended provisions will come into effect in three months’ time.
The RBI has clarified that NBFC–P2Ps cannot provide any credit enhancement or credit guarantees, adding that the entire loss of principal or interest or both, if any, in respect of funds lent by lenders to borrowers on the platforms must be borne by the lenders, and adequate disclosures to this effect must be made to lenders as part of the fair practices code.
It has also highlighted that NBFC–P2Ps should not cross-sell any insurance product, except for loan-specific insurance products. However, they are prohibited from cross-selling any insurance that is in the nature of credit enhancement or credit guarantee.
Additionally, the regulator has said that NBFC–P2P boards should have a board-approved policy for matching lenders with borrowers in an equitable and non-discriminatory manner, and no loans can be disbursed unless the lenders and the borrowers are matched, the lender has approved the recipient of the loan, and all concerned participants have signed the loan contract. Further, the RBI has prohibited the practice of matching or mapping participants in close user groups.
According to some new provisions added to the master directions, NBFC–P2Ps cannot deploy funds in any other manner other than as specified in the guidelines governing these entities. Further, they cannot utilise funds from one lender to replace those of another. Additionally, these entities must disclose the fees they will charge at the time of lending itself. Moreover, the central bank has directed that the fees charged by the NBFC–P2Ps must be a fixed amount or a fixed proportion of the principal amount involved in the lending transaction and should not be dependent upon the repayment by the borrower.
The regulator has also specified that the aggregate exposure of a lender to all borrowers at any point in time, across all P2P platforms, will be capped at Rs 50 lakh. If the amount lent by a lender exceeds Rs 10 lakh across P2P platforms, the lender will have to produce a certificate from a practising chartered accountant certifying a minimum net worth of Rs 50 lakh.
Further, the RBI has highlighted that fund transfers between participants on P2P lending platforms should be through escrow account mechanisms operated by a bank-promoted trustee. At least two escrow accounts—lenders’ escrow account and borrowers’ escrow account—are required, the regulator has said, adding that funds from the lenders’ escrow account should not be used for the repayment of loans, and funds from the borrowers’ escrow account should not be used for the disbursement of loans. All fund transfers must be through and from bank accounts, and cash transactions are strictly prohibited, the RBI said.
First Published: Aug 16 2024 | 8:49 PM IST
