RBI norms for NBFCs: Peer-to-peer lending restricted to 36 months or less

Aggregate exposure restricted to Rs 10 lakh for both lenders and borrowers

The Reserve Bank of India (RBI) on Wednesday issued rules for non-banking financial companies (NBFCs) that want to operate as peer-to-peer (P2P) lending platforms. 

The central bank has specified that the maturity of the loans must not exceed 36 months. The aggregate exposure of a lender to all borrowers at any point of time, across all P2Ps, would be subject to a cap of Rs 10 lakh. The same limit applies to aggregate loans taken by a borrower at any point of time, across all P2Ps. The exposure of a single lender to the same borrower, across all P2Ps, must not exceed Rs 50,000. 

Also, every company seeking to register with the central bank as an NBFC-P2P needs to have a net owned fund of not less than Rs 2 crore or higher, if the regulator specifies it. 

A certificate of registration would be needed to commence business and existing P2P platforms can apply within three months, the RBI said. 

An NBFC-P2P cannot raise deposits or lend on its own and shall act as an intermediary, the norms say. 

It cannot hold funds received from lenders or borrowers on its own balance sheet and will only provide an online marketplace or platform to the participants involved in P2P lending and cross-sell only loan-specific insurance products. 

The NBFC cannot permit international flow of funds and can store and process all data relating to its activities and participants only on hardware located within India.

RBI Deputy Governor N S Vishwanathan said the regulator wasn’t allowing P2P platforms to take any exposure themselves because it was the reason for many failures internationally. 

He also said the P2P platform would “target the missing middle in the credit ladder” and “bring a major shift in the crowdfunding activity”.  

An NBFC-P2P is expected to undertake due diligence on participants, provide assistance, facilitate recovery of loans and also undertake certain documentation. 

Fund transfers between participants on the P2P lending platform shall be through escrow account mechanisms, the norms state. 

Cash transactions are strictly prohibited and all fund transfers must be through and from bank accounts.