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

[Sandeep Golani]

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

NBFC-P2P is a platform by virtue of which the borrowers seeking loans are connected with a group of registered lenders (NBFC-P2P). Such lenders get returns on their investments in the form of monthly EMIs. With the multiple advantages of lower cost of borrowing, inclusive financing, uncomplicated loan process and many more the sector has unparalleled potential in the Indian economy and thus requires robust regulation.

The Reserve Bank of India (RBI) released Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017 (“Master Directions”) on 4 October 2017. The circular majorly focused upon the eligibility criteria in relation to the NBFCS who can lend and the borrowers who can avail the NBFC-P2P facility.

As per the recent amendment dated 23 December (Review of Master Directions - Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017) RBI has made a change in relation to the aggregate exposure of a lender to all its borrowers. The same shall now be subject to a cap of 50,00,000 provided that such investments of the lenders on P2P platforms are consistent with their net-worth. Further, the lender investing more than 10,00,000 across P2P platforms shall produce a certificate to P2P platforms from a practicing Chartered Accountant certifying minimum net-worth of 50,00,000. Moreover, all the lenders shall submit declaration to P2P platforms that they have understood all the risks associated with lending transactions and that P2P platform does not assure return of principal/payment of interest. Lastly, RBI has also decided that the escrow accounts to be operated by bank promoted trustee for transfer of funds need not be mandatorily maintained with the bank which has promoted the trustee.