Required fields are marked *, Impact of RBI guidelines on P2P lending platforms. An NBFC P2P thus has to plan out and document various issues, policies and documents in order to comply with the Master Directions. The RBI further specified: P2P lending companies currently serve as the tech layer between borrowers and lenders. Inc42 Shots | You Can Now Send Money Via WhatsApp, An NBFC-P2P will act as an intermediary providing an online marketplace or platform to the participants involved in peer to peer lending, Will ensure adherence to legal requirements applicable to the participants as prescribed under relevant laws, Will store and process all data relating to its activities and participants on hardware located within India, Will undertake due diligence on the participants, Will undertake credit assessment and risk profiling of the borrowers and disclose the same to their prospective lenders, Will be required to acquire prior and explicit consent of the participant to access its credit information, Will undertake documentation of loan agreements and other related documents, Will provide assistance in disbursement and repayments of loan amount. 2. details about the borrower/s including personal identity, required amount, interest rate sought and credit score as arrived by the NBFC-P2P. Comments: The objective behind these provisions appears to be safeguarding the interests of the participants on the platform, particularly the lenders, and ensuring that only genuine, credit worthy borrowers are approved. Furthermore, fund transfer between the participants on the P2P lending platform will need to be through escrow accounts operated by a trustee. The validity of the in-principle approval issued by the bank will be twelve months from the date of granting such in-principle approval. Pratik Bhakta , ET Bureau Last Updated: Jan 03, 2019, 04:19 PM IST. The key points of the Master Directions are discussed in a question-answer format, dealing with the major compliance and operational issues pertaining to the P2P lending platform. 4. While the RBI is justified in instituting restrictions on the scope of activities of peer-to-peer lending platforms, some fear that the norms could be too stringent to facilitate the market’s growth. RBIs purview with regards to regulatory oversight. to assess borrowers on more than 200 different data points and Click here to read the Mint ePaperMint is now on Telegram. Will render services for recovery of loans originated on the platform. Fashion, Furniture Brands Grab The VC Limelight In India’s D2C Space, Amazon, Flipkart Likely To Be Fined For Not Displaying Country Of Origin Tag, Infibeam Avenues Promoted So Hum Bharat To Seek NUE License From RBI. Your session has expired, please login again. Best Lawyers At your discretion, you select the people you want to invest Photo: Aniruddha Chowdhury/Mint RBI to regulate peer-to-peer lending … For P2P it is essential to adopt a structure of a company. There shall be reasonable arrangements in place to ensure that loan agreements facilitated on the platform will continue to be managed and administered by a third party in accordance with the contract terms, if the NBFC-P2P ceases to carry on the P2P activity. the expanding peer to peer lending space in India. In a draft, titled “Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017”, the central banking institution has specified a list of directions pertaining to the registration and operation of NBFC-P2Ps. Which activities are prohibited to be undertaken by an NBFC P2P? P2P Lending, is the practice of borrowing and lending money For any General Advice related matter, Ensure that the exposure of a single lender to the same borrower across all P2Ps does not exceed $767.5 (INR 50,000). entity which can legally operate a P2P Lending Platform. According to me one of the most reliable forms of P2P already exists in India since last 50+ years in the form of financial services model called group savings and lending chit funds. Facilitate disbursement and servicing of the loans, Provide loan recovery services in respect of the loans originating on the platform. Currently worth $3.2 Mn (INR 20 Cr), the country’s peer-to-peer lending industry is projected to increase to around $4 Bn-$5 Bn by 2023, Plunge Daily reports. Clearly fleshing out the rules for matching lenders to borrowers in a non-discriminatory manner. (2) Words or expressions used in these Directions but not defined herein and defined in the Additionally, as mentioned above, the NBFC P2P must also display a caveat on its website stating that the RBI would not be responsible for any incorrect or inaccurate statements on the NBFC P2P, nor would it offer any assurance for repayment of loans. The RBI Guidelines on P2P Lending mandate that any NBFC-P2P must reveal the following crucial pieces of information to the lenders: details about the borrower/s including personal identity, required amount, interest rate sought and credit score as arrived by the NBFC-P2P. which carry on the business of Peer to Peer Lending. At the minimum, the NBFC P2P is required to ensure the execution of a loan contract detailing the terms of the loan as agreed between the lender and the borrower (subject to the conditions of the Master Directions). This is because credit rating bureaus currently do not track data from unorganised sectors like peer-to-peer lending. It is possible that if the RBI feels that the industry can function efficiently without the need for excessive restrictions, these limits may undergo a change. Prior to such date, all existing NBFC P2Ps must apply for registration with the RBI and continue their business until their application for a CoR is rejected. The leverage ratio is defined as the ratio of the total outside liabilities and the owned funds (A+B) of the NBFC P2P. registered users. The RBI has put in place conditions requiring disclosure of important information on the website of an NBFC P2P which include the following: Credit score assessment mechanism/methodology and factors considered, Fair practice code based on the guidelines within the Master Directions, as approved by the Board of the NBFC P2P, Policy for handling grievances/complaints, including the details of the contact persons who can be approached for resolution of complaints against the NBFC P2P. List of verified and active borrowers at OMLp2p. SECTIONS. Cannot raise deposits (as described under the Companies Act, 2013 and the Reserve Bank of India Act, 1934), Cannot provide or arrange any credit enhancement or credit guarantee, Cannot facilitate or permit any lending which is backed by a security or collateral linked to its platform, Cannot hold any funds on its balance sheet, any form of funds, either for the purpose of lending or servicing, Cannot cross sell any product except for loan specific insurance products. Provide assistance in disbursement and repayments of loan amount. Tomorrow is different. The implementation of regulations, the RBI believes, will help bring alternative lending practices under the purview of mainstream credit bureaus. RBI's guidelines for Peer to peer lending platforms. “The Reserve Bank of India, on being satisfied that it is necessary to do so, in exercise of the powers conferred on it by... the Reserve Bank of India Act 1934, (2 of 1934) with prior approval from the government, hereby specifies, a non-banking institution that carries on the business of a peer-to-peer lending platform to be a non-banking financial company," the notification sent by RBI to the government stated. Scrutiny by the RBI and In-Principle approval. One of the reasons the RBI has released regulations for the peer-to-peer lending industry in India is to mitigate the risk of cyber breaches. This increases the legitimacy of platforms and provides a degree of comfort to the participants. According to one source, the decision to permit offline P2P lending activities is modeled after the structure of chit fund companies. through an online marketplace like Lendbox. While there is no clarity on information exchange and control mechanism to limit lender and borrower to the caps mentioned, I believe that much more clarity will come on these issues in coming days.”. At least two separate escrow accounts are required to be created by the NBFC P2P – one for the receipt of funds for disbursal from the lender, and another for the receipt of funds as servicing of the loan from the borrower. Furthermore, P2P lending platforms are not allowed to give any kind of credit guarantee, which could restrict P2P players from creating innovative products like principal protection to safeguard investor’s money. of India notifying that non-banking companies that carry business of peer-to-peer lending companies to be NBFCs is welcome. A little more than a year after the Reserve Bank of India (RBI) came out with guidelines for peer-to-peer (P2P) lending companies to convert into non-banking finance companies (NBFCs), micro and small enterprises (SME) lending has turned out to be the focus area for these companies. Further, it must also submit a viable business plan after approval by the board of directors (“ Board ”) of the NBFC P2P. Electric Vehicles This Week: Tesla’s India Challenge, Delhi Govt’s Plan & More... Are Indian Edtech Startups’ Towering Valuations Built On Shaky Grounds? One of the key highlights of the RBI’s guidelines is the fact that any company seeking registration with the Bank as NBFC-P2P shall have net owned fund of not less than rupees twenty million or higher amount as specified by the Bank. To that end, the country’s chief banking institution released a consultation paper on peer-to-peer lending in April 2016. CIBIL and all other credit bureaus which will be a significant help in Additionally, the consents required from the borrower for accessing its credit information, the document noting the acceptance of risk from the lender, and a certificate from both borrower and lender confirming the compliance to the exposure limits, must also be sought and maintained by the NBFC P2P. P2P lending firms unlike aggregator firms hold the lender’s money before giving it out to the borrower which creates a risk factor. A free flow of information about borrower profiles will help to bring down the instances of borrower default in the coming days. In case, the concerned P2P Lending site fails to act within the stipulated period of one month, the aggrieved customer can approach Customer Education and Protection Department of RBI. RBI Guidelines on P2P Lending platforms for regulating P2P Lending sector is nothing less than a watershed moment for the industry. Furthermore, the platform will not provide any assurance for the recovery of loans.
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