RBI flags breach of regulations by some NBFC-P2P lending platforms

Bars credit enhancement, caps aggregate exposure at Rs 50 lakh

The Reserve Bank of India (RBI) on Friday flagged regulatory violations by some non-banking financial companies (NBFCs) peer-to-peer (P2P) lending platforms, prompting it to revise the guidelines that include prohibiting credit enhancements and capping aggregate exposure at Rs 50 lakh.

These violations included promoting P2P lending as investment products, offering liquidity options, and functioning as deposit takers and lenders rather than just acting as intermediaries. “Such violations, when observed, have been dealt bilaterally by the RBI for remediation,” the regulator said.

According to the RBI, NBFC—P2P lending platforms are supposed to act as an intermediary providing an online marketplace to the participants in P2P lending.

The regulator has added new provisions to the master directions that will come into effect in three months.

According to the new guidelines, such platforms are prohibited from providing credit enhancements or guarantees, and any loss of principal or interest must be borne by the lenders, with appropriate disclosures required. 

The RBI has also mandated that such platforms cannot cross-sell insurance products beyond those specific to the loan, and must not engage in practices related to credit enhancement or guarantees.

Additionally, the regulator has said NBFC-P2P boards must have policies for matching lenders with borrowers in an equitable and non-discriminatory manner. 

Loans cannot be disbursed unless all participants are properly matched, and a signed loan contract is in place. Matching participants within close user groups is also prohibited.

According to the guidelines, NBFC-P2Ps cannot deploy funds in any manner other than ways specified by the regulations and cannot use funds of a lender to replace that of another. These entities have to disclose the fees they will charge at the time of lending itself.  

The fees charged by the NBFC-P2Ps has to be either a fixed amount or a fixed proportion of the principal and should not be dependent on the repayment by the borrower.

The regulator has also specified that the aggregate exposure of a lender to all borrowers at any point of time across P2P platforms will be capped at Rs 50 lakh. In case the amount lent by a lender is more than Rs 10 lakh across P2P platforms, the lender must produce a certificate from a practicing chartered accountant certifying minimum net worth of Rs 50 lakh.

The RBI has highlighted that fund transfers between participants on the P2P platforms should be 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 purposes other than their designated transactions, and all transactions must be conducted through bank accounts, with cash transactions strictly prohibited.