Non – Banking Financial Company– Peer to Peer Lending Platform (Reserve Bank) Directions, 2017

Practice Areas

By Baljeet Singh

The Reserve Bank of India (“RBI”) vide its Master Direction (bearing no. DNBR (PD) 090/ 03.10.124/2017-18) dated 4th October 2017 issued directions with regard to providing a framework for the registration and operation of Non-Banking Financial Company- Peer to Peer Lending Platform (“NBFC-P2P”) in India. The Master Directions clearly reflects the eligibility criteria, procedure for obtaining the registration, scope of work, operational guidelines and the norms to be followed by such NBFC-P2P.

Eligibility

  1. There shall be a company incorporated in India having a net owned assets of not less than Rs. 20 million or such higher amount as RBI may specify;
  2. Such company shall obtain a certificate of registration for acting as a NBFC-P2P;
  3. Such company shall have the necessary and adequate expertise, resources and capital to act as NBFC-P2P and the general character of the management shall not be prejudicial to the public interest;
  4. Such company shall submit a secure plan for their information technology system and shall have a viable business plan for conducting Peer to Peer Lending; and
  5. Any other condition that RBI may specify from time to time.

In the event there is an NBFC-P2P company existing before issue of these Master Directions, it shall obtain a registration certificate within three (3) months from the date of these Master Directions and such existing NBFC-P2P company shall continue to operate their business until the application for obtaining the certificate of registration is rejected by RBI.

Grant of the Registration Certificate

RBI shall, upon being satisfied, grant an in-principle approval to the concerned company to act as an NBFC-P2P pursuant to which the concerned company shall within twelve (12) months of such in-principle approval put in place the required platform, fulfill all the legal documentations and all the compliances in terms of the approval given by the RBI in order to obtain a certificate of registration.

Scope of Work of the NBFC-P2P

 The NBFC-P2P shall act as an intermediary by creating an online platform where the lenders and the borrower will interact. The NBFC-P2P shall undertake the due diligence, credit assessment, risk profiling of the prospective borrowers, take consent from the borrowers for gaining access to their credit information, undertake relevant documentations, provide assistance in loan repayment, and also render services for recovery of the loan, including storage of all data relating to its activities and ensuring adherence to all legal requirements applicable to it. However the NBFC-P2P shall not raise deposits, lend loans, provide for any credit enhancement or credit guarantee, hold the funds received from the lender, or permit international flow of funds.

Rules/ Norms to be applicable to the NBFC-P2P

The aggregate exposure of a lender to all the borrowers across all P2Ps shall be subject to a cap of Rs. 10,00,000.00 while the limit for aggregate amount of loan to be taken by a borrower shall be Rs. 10,00,000.00. Further, the exposure of a single lender to the same borrower shall not exceed Rs. 50,000.00 and the maturity of all such loans shall not exceed the period of 36 months. The NBFC-P2P shall have a policy approved by its Board to set out the eligibility criteria, determine the cost of its services, the rules for matching lenders with the borrowers.

Further, the loan to be disbursed shall be done through an escrow account mechanism that shall be operated by a trustee who shall be promoted by the bank maintaining such escrow account

The NBFC-P2P shall become member of the Credit Information Companies (“CICs”) wherein all the data shall be submitted to the CICs. The NBFC-P2P shall maintain the credit information, update all such credit information, and take all such steps which may be necessary to ensure that the credit information furnished is up to date.

Transparency to be ensured

The NBFC-P2P shall ensure that transparency in the entire process is maintained, which effectively means that the NBFC-P2P shall ensure disclosure of information (as required) to the lender, borrower and to the public. Such information, in case of lender would include details about the borrower; credit score of borrower, etc. while in the case of borrower shall include details of lender, interest rate, etc. Other information which the NBFC-P2P needs to disclose to the public shall include overview of the credit assessment, grievance redressal mechanism, business model, etc.

Fair practices and Fit and Proper Criteria

The NBFC-P2P shall put in place a Fair Practices Code in accordance with the RBI Master Directions which shall include obtaining affirmation from the lender that the lenders are aware of the risks associated with the transactions involved herein and that the NBFC-P2P shall not be responsible for providing any assurance to the Lenders. Further, in accordance with the Fair Practices Code, the NBFC-P2P shall also ensure that the staffs are adequately trained.

Also, all the compliance related requirements and the non disclosure obligations of the NBFC-P2P shall be ensured.Other relevant aspects to be considered by the NBFC-P2P shall be to put in place a proper grievance redressal unit and a strong safeguard for the IT systems to ensure that all the data are secure from any unauthorized usage.

The NBFC shall also be required to ensure that “Fit and Proper” criteria is met and maintained by its directors. Such criteria shall be laid down and approved by the Board.

Prior Approval to be obtained in certain cases

The NBFC-P2P shall have to submit an application to the RBI for obtaining prior approval from the RBI including but not limited to, acquisition of the NBFC-P2P, change in shareholding of the NBFC-P2P that results in acquisition of more than 26% of the paid up equity capital of the NBFC-P2P, change in management of the NBFC-P2P resulting in change of 30% of the directors, etc.