Master Directions - Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017
RBI/DNBR/2017-18/57
Master Direction DNBR (PD) 090/ 03.10.124/ 2017-18
October 04, 2017
Master Directions - Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017
The Reserve Bank of India, (hereinafter referred to as “the Bank”) issued a Notification No DNBR.045/CGM (CDS)-2017 dated August 24, 2017 in terms of sub-clause (iii) of clause(f) of section 45I of the Reserve Bank of India Act, 1934 (hereinafter referred to as “the Act”) and on being satisfied that it is necessary to do so, in exercise of the powers conferred under section 45IA, 45JA, 45L,and 45M of the Act, and of all the powers enabling it in this behalf, hereby issues these Directions for compliance of the same by every Non-Banking Financial Company that carries on the business of a Peer to Peer Lending Platform.
1. Short title and commencement of the Directions:
(1) These Directions shall be known as the Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017.
(2) These Directions shall come into force with immediate effect.
2. Applicability of the Directions
These Directions shall apply to every Non-Banking Financial Company- Peer to Peer Lending Platform (NBFC-P2P) as defined in these Directions.
3. Scope
These Directions provide a framework for the registration and operation of NBFC-P2Ps in India.
4. Definitions
(1) In these Directions, unless the context otherwise requires, the terms used herein shall bear the meanings assigned to them below —
“Company” means a company as defined in clause (20) of section 2 of the Companies Act, 2013;
“Leverage Ratio” means the Total Outside Liabilities divided by Owned Funds, of the NBFC-P2P.
“Non-performing asset” (NPA) means a loan where interest and/ or installment of principal remain overdue for a period of 90 days or more.
“Participant” means a person who has entered into an arrangement with an NBFC-P2P to lend on it or to avail of loan facilitation services provided by it;
”Peer to Peer Lending Platform” means an intermediary providing the services of loan facilitation via online medium or otherwise, to the participants as defined at Item (iv) of sub-paragraph (1) of paragraph 4 of these directions;
“Non-banking financial company - Peer to Peer Lending Platform” (NBFC-P2P) means a non-banking institution which carries on the business of a Peer to Peer Lending Platform.
(2) Words or expressions used in these Directions but not defined herein and defined in the Act or in the Companies Act, 2013 shall have the same meaning as assigned to them under those Acts.
5. Registration
(1) Eligibility Criteria
(i) No non-banking institution other than a company shall undertake the business of Peer to Peer Lending Platform.
(ii) No NBFC-P2P shall commence or carry on the business of a Peer to Peer Lending Platform without obtaining a Certificate of Registration (hereinafter referred to as “CoR”) from the Bank. Provided that an entity carrying on the business of a Peer-to-Peer Lending Platform as on the effective date of these directions, can continue to do so, subject to the conditions laid down in sub-paragraph (2)(vii) in this Paragraph.
(iii) 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) Process of Registration
(i) Every existing and prospective NBFC-P2P shall make an application for registration to the Department of Non-Banking Regulation, Mumbai of the Bank, in the form which will be specified by the Bank for the purpose. Existing NBFC-P2Ps shall apply within three months from the issuance of these Directions.
(ii) The Bank, for the purpose of considering the application for registration, shall require the following conditions, among others, to be fulfilled:
The company is incorporated in India;
The company has the necessary technological, entrepreneurial and managerial resources to offer such services to the participants;
The company has the adequate capital structure to undertake the business of Peer to Peer Lending Platform;
The promoters and the Directors of the company are fit and proper;
The general character of the management of the company is not prejudicial to the public interest;
The company has submitted a plan for, or implemented, a robust and secure Information Technology system;
The company has submitted a viable business plan for conducting the business of Peer to Peer Lending Platform;
Public interest shall be served by the grant of CoR;
Any other condition as may be specified by the Bank, fulfillment of which, in the opinion of the Bank, is necessary to ensure that the commencement of or carrying on the business in India shall not be prejudicial to the public interest.
In case of prospective NBFC-P2Ps
(iii) The Bank may, after being satisfied that the conditions specified under paragraph 5(2)(ii) are fulfilled, grant in-principle approval for setting up of a Peer to Peer Lending Platform, subject to such conditions which it may consider fit to impose.
(iv) The validity of the in-principle approval issued by the Bank will be twelve months from the date of granting such in-principle approval.
(v) Within the period of twelve months, the company shall put in place the technology platform, enter into all other legal documentations required and report position of compliance with the terms of grant of in-principle approval to the Bank.
(vi) The Bank may, after being satisfied that the entity is ready to commence operations, grant a CoR as an NBFC–P2P, subject to conditions as deemed fit by the Bank.
In case of existing NBFC-P2Ps
(vii) 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 business, as the Reserve Bank may impose.
(viii) The Bank may cancel the CoR granted to an NBFC-P2P, if such company –
ceases to carry on the business of Peer to Peer Lending Platform in India; or
has failed to comply with any condition subject to which the CoR has been issued to it; or
is no longer eligible to hold the CoR; or
at any time fails to fulfill any of the conditions referred to in paragraphs 5(2)(ii) and 5(2)(v); or
fails to –
(i) comply with any Direction issued by the Bank; or
(ii) maintain accounts, publish and disclose its financial position in accordance with the requirements of any law or any Direction or order issued by the Bank; or
(iii) submit or offer for inspection its books of account or other relevant documents when so demanded by the Bank.
6. Scope of Activities
(1) An NBFC-P2P shall-
act as an intermediary providing an online marketplace or platform to the participants involved in Peer to Peer lending;
not raise deposits as defined by or under Section 45I(bb) of the Act or the Companies Act, 2013;
not lend on its own;
not provide or arrange any credit enhancement or credit guarantee;
not facilitate or permit any secured lending linked to its platform; i.e. only clean loans will be permitted;
not hold, on its own balance sheet, funds received from lenders for lending, or funds received from borrowers for servicing loans; or such funds as stipulated in paragraph 9;
not cross sell any product except for loan specific insurance products;
not permit international flow of funds;
ensure adherence to legal requirements applicable to the participants as prescribed under relevant laws.
store and process all data relating to its activities and participants on hardware located within India.
(2) Further, NBFC-P2P shall-
undertake due diligence on the participants;
undertake credit assessment and risk profiling of the borrowers and disclose the same to their prospective lenders;
require prior and explicit consent of the participant to access its credit information;
undertake documentation of loan agreements and other related documents;
provide assistance in disbursement and repayments of loan amount;
render services for recovery of loans originated on the platform.
(3) NBFC-P2P shall not undertake any activity other than those stated in paras 6(1) and 6(2) of these Directions. Deployment of investible funds by an NBFC-P2P in instruments specified by the Bank, not for trading, shall however be permitted.
7. Prudential Norms
(1) NBFC-P2P shall maintain a Leverage Ratio not exceeding 2.
(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 ₹ 10,00,000/-.
(3) 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/-.
(4) The exposure of a single lender to the same borrower, across all P2Ps, shall not exceed ₹ 50,000/-.
(5) The maturity of the loans shall not exceed 36 months.
(6) P2Ps shall obtain a certificate from the borrower or lender, as applicable, that the limits prescribed above are being adhered to.
8. Operational Guidelines
(1) NBFC-P2P shall have a Board approved policy in place -
Setting out the eligibility criteria for participants on it.
Determining the pricing of services provided by it.
Setting out the rules for matching lenders with borrowers in an equitable and non-discriminatory manner.
(2) The outsourcing of any activity by NBFC-P2P does not diminish its obligations and it shall be responsible for the actions of its service providers including recovery agents and the confidentiality of information pertaining to the participant that is available with the service providers.
(3) No loan shall be disbursed unless the individual lender/s have approved the individual recipient/s of the loan and all concerned participants have signed the loan contract.
9. Fund Transfer Mechanism
Fund transfer between the participants on the Peer to Peer Lending Platform shall be through escrow account mechanisms which will be operated by a trustee. At least two escrow accounts, one for funds received from lenders and pending disbursal, and the other for collections from borrowers, shall be maintained. The trustee shall mandatorily be promoted by the bank maintaining the escrow accounts. All fund transfers shall be through and from bank accounts and cash transaction is strictly prohibited. The mechanism as described in the Annex-I may be adopted by the NBFC-P2P.
