#94 Newsletter

Market Watch

Market Commentary

End of P2P lending as we know it?

Introduction

The Reserve Bank of India (RBI) has released amendments to the Master Direction for Non-Banking Financial Company – Peer to Peer Lending Platform (NBFC-P2P) Directions, 2017. These changes are designed to ensure that P2P platforms operate within the regulatory framework while protecting the interests of both lenders and borrowers.

Prohibited Practices

NBFC-P2P platforms have been found engaging in practices that violate the original Directions, such as:

- Acting as deposit takers or lenders.

- Promoting P2P lending as an investment product with assured returns.

- Providing liquidity options that are not permitted.

These practices have been addressed by the RBI, and the new amendments seek to eliminate such violations.

Amendments to Existing Provisions

Key amendments include:

- No Credit Risk Assumption: NBFC-P2P platforms are now explicitly prohibited from assuming any credit risk, directly or indirectly.

- Restricted Product Sales: Cross-selling of any products, except loan-specific insurance, is not allowed. Insurance products that provide credit enhancement are also prohibited.

- Lender Exposure Cap: The aggregate exposure of a lender across all P2P platforms remains capped at ?50,00,000, consistent with their net worth.

New Provisions

The amendments introduce several new provisions, including:

- Disclosure Requirements: Platforms must now disclose additional details to lenders, including potential losses.

- Prohibition of Closed User Groups: The practice of matching participants within closed user groups is not allowed.

Conclusion

These updates reinforce the RBI’s commitment to ensuring that NBFC-P2P platforms operate transparently and within the boundaries of the law, thereby safeguarding the interests of all stakeholders involved.

Media Appearances

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