RBI, vide notification dated 16th August 2024, has amended the provisions of The Master Direction - Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017 (“MD”), to address and rectify observed violations by NBFC-P2P Lending Platforms (“P2P”). These amendments aim to provide clearer guidelines and modifications to ensure proper adherence to the MD, enhancing the integrity and functionality of P2P lending practices. It has been clarified that the amended provisions except for clause 7 hereunder will come into force immediately. Clause 7 shall be effective from November 15, 2024. The key amendments are as follows:
1. P2P is explicitly prohibited from assuming any credit risk related to transactions on its platform. If there is a loss of principal or interest for lenders, the P2P will not bear that risk; it will be solely the responsibility of the lenders. Additionally, the P2P must make adequate disclosures about this risk to lenders, as part of the fair practices code.
2. P2P is explicitly prohibited from cross-selling any product except for loan specific insurance products. Furthermore, P2P is also prohibited from cross selling any insurance product that functions as credit enhancement or credit guarantee.
3. The RBI has clarified that the Rs.50,00,000 cap on a lender's total exposure across all P2P must be consistent with the lender's net-worth. It maintains the requirement for a Chartered Accountant's certificate certifying minimum net-worth of Rs.50,00,000, if lending exceeds Rs.10,00,000.
4. The Board-approved policy for P2P platforms must now explicitly address both "matching" and "mapping" lenders with borrowers in an equitable and non-discriminatory manner, expanding from the previous requirement which only covered "matching."
5. Before a loan can be disbursed, it is now required that lenders and borrowers be matched or mapped in accordance with the aforementioned board-approved policy. This requirement is in addition to obtaining individual lender approval and ensuring all parties have signed the loan contract.
6. In addition to the requirement of P2P using two separate escrow accounts: one for lenders and one for borrowers, it has been clarified that, the funds from lenders should be deposited in the lenders' escrow account and can only be disbursed to specific borrower account and the borrowers can make repayments only into borrowers' escrow account, and the funds from there shall be transferred to the lenders' accounts. Prohibition on cash transaction is still maintained. For ease of reference, RBI has also provided a pictorial depiction of the funds transfer mechanism for the P2P to adopt.
7. Additionally, the mandate now stipulates that fund transferred into the lenders’ escrow account and borrowers’ escrow account must not remain in these accounts for more than 'T+1' day, where 'T' is the date, the funds are received.
8. P2P shall be required to obtain and keep a record of the borrower's consent before disclosing their personal identity to the lender.
9. P2P shall publicly disclose on its website not only the portfolio performance of the Borrower including share of NPAs and their age but also details of all losses incurred by lenders on both principal and interest.
10. The previous requirement to display a caveat stating that “the Reserve Bank of India does not accept any responsibility for the correctness of any 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” has been updated. The caveat must now start with “It is an NBFC-P2P lending platform registered with the Reserve Bank” and be prominently displayed on the platform’s website, mobile and web applications, and any other promotional materials.
11. Among the core management functions that cannot be outsourced, setting, or determining the fees and pricing for services provided to borrowers and lenders has been explicitly included.
In addition to the afore mentioned amendments, the following provisions have been newly introduced:
12. P2Ps must use lenders' funds exclusively as specified in the MD and cannot use them to replace funds of other lenders.
13. The pricing policy of the P2P must be objective, with fees clearly disclosed at the time of lending as either a fixed amount or a fixed percentage of the principal. Fees must not depend on borrower repayment.
14. Matching or mapping participants by the P2P within a closed user group, including those sourced through affiliates or service providers, whether sourced through an outsourced agency or otherwise is prohibited.
15. P2Ps must prominently display their registered name and any brand name in all customer touchpoints, promotional materials, and communications with stakeholders.
