Reviewed provisions of Master Direction - Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017

The Non-Banking Financial Company - Peer to Peer Lending Platform (NBFC-P2P Lending Platform) was intended by the Directions to serve as an intermediary, offering an online marketplace and platform to the peer-to-peer lending participants. Thus, The Directions had established precise standards for a number of areas of the operation of P2P Lending Platforms - NBFC. Nevertheless, it has been noted that a few of these Certain practices that are in violation of the aforementioned Directions have been undertaken by platforms. Like that These include, among other things, not using the authorized method for transferring cash, encouraging peer-to-peer lending as a financial instrument with attributes like tenure related guaranteed minimum returns, offering choices for liquidity, and occasionally functioning as a deposit borrowers and lenders as opposed to acting as a platform. When such infractions are noticed, they have been resolved.

There are certain provisions that are amended by this revised Direction:-

1. Clause 6 (1) (iv)- A credit guarantee or enhancement cannot be arranged or provided by an NBFC-P2P. NBFCP2P will not take on any credit risk. either directly or indirectly resulting from business dealings conducted using this platform. Stated differently, the total principle loss, interest loss, or both, if any, in about the money that lenders have loaned to consumers on The lenders will cover the platform's costs. Sufficient disclosures on this matter must be as a component of the fair practices guideline, to lenders.
2. Clause 6 (1) (vii)- An NBFC-P2P shall not cross sell any product except for loan specific insurance products. It may be noted that NBFC-P2P shall not cross sell any insurance product also which is in the nature of credit enhancement or credit guarantee.
3. Clause 7 (2)- The aggregate exposure of a lender to all borrowers at any point of time, across all P2P platforms, shall be subject to a cap of Rs.50,00,000 provided that the amount lent by the lenders on P2P platforms is consistent with their net-worth. In case, the amount lent by a lender is more than Rs.10,00,000 across P2P platforms, the lender shall produce a certificate to P2P platforms from a practicing Chartered Accountant certifying minimum net-worth of Rs.50,00,000.
4. Clause 8 (1) (iii)- NBFC-P2P shall have a Board approved policy in place - Setting out the rules for matching/mapping lenders with borrowers in an equitable and non-discriminatory manner.
5. Clause 8 (3)- No loan shall be disbursed unless the lenders and the borrowers have been matched/ mapped as per the board approved policy framed, the individual lender(s) have approved the individual recipient(s) of the loan and all concerned participants have signed the loan contract.
6. Clause 9- Fund transfer between the participants on the Peer to Peer Lending Platform shall be through escrow account mechanisms which will be operated by a bank promoted trustee. At least two escrow accounts, one for funds received from lenders and pending disbursal (i.e., Lenders’ escrow Account), and the other for collections from borrowers (i.e., Borrowers’ escrow Account), shall be maintained. Under this prescribed funds transfer mechanism, funds from the lenders’ bank accounts shall only be transferred to the Lenders’ Escrow Account and shall only be disbursed to the specific borrower’s bank account after ensuring compliance to the paragraph 8(3) of these Directions. The borrower shall transfer the amount towards repayment of loan from his bank account to the Borrowers’ Escrow Account, from where the funds shall only be transferred to the respective lender’s bank account. . Funds from ‘Lenders’ Escrow Account’ shall not be used for repayment of loans and funds from ‘Borrowers’ Escrow Account’ shall not be used for disbursement of loans. All fund transfers shall be through and from bank accounts and cash transaction is strictly prohibited. The pictorial depiction of the Funds Transfer Mechanism shall be adopted by the NBFCP2P. The funds transferred into the Lenders’ Escrow Account and Borrowers’ Escrow Account shall not remain in these Escrow Accounts for a period exceeding ‘T+1’ day, where ‘T’ is the date on which the funds are received in these Escrow Accounts.
7. Clause 11 (1) (i) (a)- An NBFC-P2P shall be required to disclose to the lender details about the borrower(s) including personal identity with his/ her consent (which should be kept on record), required amount, interest rate sought and credit score as arrived by the NBFC-P2P.
8. Clause 11 (1) (iii) (d)- An NBFC-P2P shall be required to disclose, publicly disclose on its website, portfolio performance including share of non-performing assets (NPAs) on a monthly basis and segregation by age. It may be noted that such disclosures shall also include all losses borne by the lenders on principal or interest or both.
9. Clause 12 (2)- NBFC-P2P shall be required to obtain explicit declaration from the lender stating that he/she has understood all the risks associated with the lending transactions and that P2P platform does not assure return of principal/payment of interest. The declaration shall also state that there exists a likelihood of loss of entire principal in case of default by a borrower. The P2P platform shall not provide any assurance or guarantee for the recovery of loans. Further, the P2P platform shall not promote peer to peer lending as an investment product with features like tenure linked assured minimum returns, liquidity options, etc.
10. Annex-VI-2 - If NBFC-P2Ps decide to outsource any of their operations, they must not, however, outsource internal auditing or other critical management duties. Strategic, compliance, and auditing functions, The cost of the services and any additional fees Loans/borrowers and the decision-making process duties including assessing adherence to KYC standards. For NBFC-P2Ps, though, in a group or conglomerate, these roles could be outside the group and subject to adherence to the guidelines in Paragraph 6. Additionally, Although the internal auditing function is a internal auditors can participate in the management process possess a contract.

Certain provisions are also added to the Master Directions:-

1. Para 6(1)(xi) - An NBFC-P2P shall not deploy lenders’ funds in any manner other than as specified in these Directions.
2. Para 6(1)(xii) – NBFC-P2P shall not utilize funds of a lender for replacement of any other lender(s).
3. Para 8(4) - The pricing policy shall be objective and NBFC-P2P shall disclose the fees liable to be charged, ab initio, i.e., at the time of lending itself. The fees shall be a fixed amount or a fixed proportion of the principal amount involved in the lending transaction. The fees shall not be dependent upon the repayment by the borrower(s).
4. Para 8(5) - The practice of matching/ mapping the participants within a closed user group, whether sourced through an outsourced agency or otherwise, is not permitted. Examples of ‘closed user group’ include borrowers/lenders sourced through an affiliate/service provider to the NBFC-P2P.
5. Para 11(4) - NBFC-P2P shall explicitly and prominently mention its name (as mentioned in the Certificate of Registration) along with its brand name, if any, in all its touch points/ customer interfaces including promotional material and any communication with stakeholders/ participants.
6. Para 12(6) - The platform shall display a caveat prominently on its website, mobile/web applications including any other promotional material used by it that “It is an NBFC-P2P lending platform registered with the Reserve Bank. However, Reserve Bank does not accept any responsibility for the correctness of any of the statements or representations made or opinions expressed by the NBFC-P2P and does not provide any assurance for repayment of the loans lent on it”