The Reserve Bank of India (RBI) on Friday flagged regulatory violations by some non-banking financial companies (NBFCs) peer-to-peer (P2P) lending platforms. This prompted a revision of guidelines, including prohibiting credit enhancements and capping aggregate exposure at Rs 50 lakh. The violations included promoting P2P lending as investment products, offering liquidity options, and functioning as deposit takers and lenders rather than intermediaries. “Such violations, when observed, have been dealt bilaterally by the RBI for remediation,” the regulator stated.
According to the RBI, NBFC-P2P lending platforms should act as intermediaries, providing an online marketplace for P2P lending participants. New provisions added to the master directions will take effect in three months. The updated guidelines prohibit these platforms from offering credit enhancements or guarantees, requiring lenders to bear any loss of principal or interest with appropriate disclosures. Additionally, these platforms cannot cross-sell insurance products beyond those specific to the loan and must avoid practices related to credit enhancement or guarantees.
Additionally, the regulator mandates that NBFC-P2P boards must establish policies to match lenders with borrowers equitably and without discrimination. Loans can only be disbursed when all participants are properly matched and a signed loan contract is in place. Matching participants within close user groups is prohibited.
According to the guidelines, NBFC-P2Ps cannot deploy funds in any manner other than those specified by the regulations and cannot use one lender’s funds to replace another’s. These entities must disclose their fees at the time of lending. The fees charged must be either a fixed amount or a fixed proportion of the principal and should not depend on the borrower’s repayment.
The regulator has specified that a lender’s aggregate exposure to all borrowers across P2P platforms will be capped at Rs 50 lakh. If a lender’s total lending exceeds Rs 10 lakh across P2P platforms, they must provide a certificate from a practicing chartered accountant certifying a minimum net worth of Rs 50 lakh.
The RBI also mandates that fund transfers between participants on P2P platforms must occur through escrow accounts managed by a bank-promoted trustee, with at least two separate accounts for lenders and borrowers. Funds from these accounts cannot be used for any purposes other than their designated transactions, and all transactions must be conducted through bank accounts, with cash transactions strictly prohibited.