1. Capital Requirement:
RBI has mandated the capital requirement for the existing as well as the aspiring NBFC-P2P.
“Every company seeking registration with the Bank as an NBFC-P2P shall have a net owned fund of not less than rupees twenty million or such higher amount as the Bank may specify”
2. Effect of Guidelines on an existing P2P platform:
The guideline has mandated registration of existing NBFC-P2P to the Department of Non-Banking Regulation. An existing P2P platform shall complete the application within three months from the date of issuance of the Directions.
“Companies that are undertaking the business of Peer to Peer Lending Platform, as defined at paragraph 4(1)(v) of these directions, as on the date of effect of these directions, shall apply for registration as an NBFC-P2P to the Bank within 3 months from that date. Such companies, which have applied to the Bank for registration as an NBFC – P2P, shall be permitted to continue the business of a Peer to Peer Lending Platform till their application for issuance of CoR is rejected, subject to such conditions, including winding down of a business, as the Reserve Bank may impose.”
3. Lending Guidelines:
The RBI, in the guidelines, has sought to reduce the risk to a retail investor. The lending amount per person has been capped to one million rupees (INR 10,00,000/-) across NBFC-P2P. The guideline however is silent on institutional lenders. Also, exposure of a single lender to a borrower across NBFC-P2P has been capped to rupees fifty thousand (INR 50,000/-).
The capping amount is beneficial for retail lenders as it would reduce the risk. However, it would be a pain point for HNIs and UHNIs who understand their risk and are interested in taking a bigger exposure.
“The aggregate exposure of a lender to all borrowers at any point of time, across all P2Ps, shall be subject to a cap of 50,00,000/- with a need to provide net worth certificate for investing above ₹10,00,000.”
4. Nature of Loans:
The guidelines have only allowed NBFC-P2P to originate unsecured loans linked to its platform. It is good as well as bad. Secured lending products are complex in nature and RBI might have thought about instances of miss-selling of those loans. However, this will affect innovation in the sector to some extent.
“not facilitate or permit any secured lending linked to its platform; i.e., only clean loans will be permitted.”
5. Capital and Return Guarantee:
RBI has been mandated to receive explicit affirmation from participating lenders about the risks involved in the transaction. NBFC-P2P shall not guarantee any return and the entire principal may be lost in case of a default by a borrower. NBFC-P2P also cannot guarantee the recovery of loans.
“not provide or arrange any credit enhancement or credit guarantee”.
6. Focus on Transparency:
The guidelines have emphasized transparency during the activity of lending and borrowing. NBFC-P2P are required to disclose the personal identity, required loan amount, interest rate and credit score, T&C of loan, likely returns, fees, and taxes.
“An NBFC-P2P shall be required to disclose the following: (i) to the lender
(a) details about the borrower/s including personal identity, required amount, interest rate sought, and credit score as arrived by the NBFC-P2P.
(b) details about all the terms and conditions of the loan, including likely return, fees, and taxes;.”
The emphasis is also on privacy as only a few details are asked to be shared between the lenders and borrowers.
7. Borrowing Limit and CIC reporting:
This is a significant step in the guidelines to discourage rampant borrowing across NBFC-P2P. A single borrowing individual can, at a time, borrow not more than one million rupees (INR 10,00,000/-) across all NBFC-P2P. Also, the details of the loan are to be mandatorily reported to CIC in the country.
“The aggregate loans taken by a borrower at any point of time, across all P2Ps, shall be subject to a cap of ` 10,00,000/-.
NBFC-P2P shall: (i) keep the credit information (relating to borrower transactions on the platform) maintained by it, updated regularly monthly or at such shorter intervals as may be mutually agreed upon between the NBFC-P2P and the CICs.”
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