P2P Lending Regulations – Important Provisions You Should Know
The Reserve Bank of India, in its recent notification, has brought in platforms carrying out the business of P2P lending under the purview of NBFC. Below are the key provisions:
Any business proposing to carry out business of Peer to Peer (“P2P”) Lending will be required to register with the Reserve Bank of India (“RBI”).
Existing entities carrying out the P2P business will have to register within 3 months of the notification
Dos and Don’ts
What can a registered P2P entity do?
Act as an intermediary providing an online marketplace or platform for P2P lending.
Ensure adherence to legal requirements applicable to the participants.
Store and process all data relating to its activities and participants on hardware located within India.
Undertake due diligence on the participants and undertake credit assessment and risk profiling of the borrowers and disclose the same to their prospective lenders.
What are the restrictions on a registered P2P entity?
Cannot raise deposits.
Cannot lend on its own.
Cannot provide or arrange any credit enhancement/credit guarantee.
Cannot facilitate or permit any secured lending linked to its platform.
Cannot hold, on its own balance sheet, funds received from lenders for lending, or funds received from borrowers for servicing loans.
Cannot cross sell any product except for loan specific insurance products.
Cannot permit international flow of funds.
A P2P entity shall maintain a Leverage Ratio not exceeding 2.
The aggregate exposure of a lender to all borrowers at any point of time, across all P2Ps, shall be subject to a cap of INR 10,00,000/-.
The aggregate loans taken by a borrower at any point of time, across all P2Ps, shall be subject to a cap of INR 10,00,000/-.
The exposure of a single lender to the same borrower, across all P2Ps, shall not exceed INR 50,000/-.
The maturity of the loans shall not exceed 36 months.
P2Ps shall obtain a certificate from the borrower or lender, as applicable, that the limits prescribed above are being adhered to.
Mode of Transfer of Funds
Fund transfer between the participants on the P2P lending platform shall be through escrow account mechanism, which will be operated by a trustee.
The P2P entity needs to set up at least 2 escrow accounts – 1 for funds received from lenders and pending disbursal, and the other for collections from borrowers.
The trustee shall mandatorily be promoted by the bank maintaining the escrow accounts.
Prior written permission of the Bank shall be required for:
Any allotment of shares which will take the aggregate holding of an individual or group to equivalent of 26% and more of the paid up capital of the P2P entity.
Any takeover or acquisition of control of a P2P entity, which may or may not result in change of management.
Any change in the shareholding of a P2P entity, including progressive increases over time, which would result in acquisition by/ transfer of shareholding to, any entity, of 26% or more of the paid up equity capital of the P2P entity.
Any change in the management of the P2P entity which would result in change in more than 30% of the Directors, excluding Independent Directors.
Any change in shareholding that will give the acquirer a right to nominate a Director.
Public Notice about Change in Control/ Management
A public notice of at least 30 days shall be given before effecting the sale of, or transfer of the ownership by sale of shares, or transfer of control, whether with or without sale of shares. Such public notice shall be given by the P2P entity and also by the other party or jointly by the parties concerned, after obtaining the prior permission of the Bank.
Intimation Requirements – Change of address, directors, auditors, etc. RBI needs to be intimated about any of the following changes, within 30 days from the change:
The complete postal address, telephone number/s and fax number/s of the registered / corporate office.
The residential addresses of the Directors of the company.
The names and office address of the auditors of the company.
The specimen signatures of the officers authorised to sign on behalf of the NBFC-P2P to the Regional Office of the Department of Non-Banking Supervision of the Bank within whose jurisdiction the Registered Office of the P2P entity is located.
The following quarterly statements are required to be submitted to the RBI within 15 days of the end of each quarter:
A statement, showing the number and amount in respect of loans (quarterly).
The amount of funds held in the Escrow Account.
Number of complaints outstanding at beginning and at end of quarter, and disposed of during the quarter.
The Leverage Ratio, with details of its numerator and denominator.