The Reserve Bank of India has cautioned non-banking financial company – peer-to-peer (NBFC-P2P) lending platforms that they cannot promote P2P lending as an investment product with features such as tenure-linked assured minimum returns, and liquidity options.
The central bank also said an NBFC-P2P cannot utilise funds of a lender for replacement of any other lender(s). Currently, there are 26 NBFC-P2P lending platforms in India.
These aforementioned directives come as some of these platforms have adopted certain practices which are violative of its 2017 Master Directions NBFC-P2P lending platform.
Such practices include, among others, violation of the prescribed funds transfer mechanism, promoting P2P lending as an investment product with features like tenure linked assured minimum returns, providing liquidity options and at times acting like deposit takers and lenders instead of being a platform.
Such violations, when observed, have been dealt with bilaterally by the RBI for remediation.
The RBI emphasised that the pricing policy should be objective and an NBFC-P2P should disclose the fees liable to be charged, ab initio, that is at the time of lending itself.
The fees should be a fixed amount or a fixed proportion of the principal amount involved in the lending transaction. The fees cannot be dependent upon the repayment by the borrower(s).
The RBI underscored that the practice of matching/ mapping the participants within a closed user group, whether sourced through an outsourced agency or otherwise, is not permitted.
Examples of ‘closed user group’ include borrowers/lenders sourced through an affiliate/service provider to the NBFC-P2P.
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Entire loss of principal or interest or both, if any, in respect of funds lent by lenders to borrowers on the platform has to be borne by the lenders and adequate disclosures to this effect has to be made to lenders as part of fair practices code.
An NBFC-P2P can only cross-sell loan specific insurance products. It cannot cross-sell any insurance product which is in the nature of credit enhancement or credit guarantee.
The aggregate exposure of a lender to all borrowers at any point of time, across all P2P platforms, will continue to be subject to a cap of ₹50 lakh provided that the amount lent by the lenders on P2P platforms is consistent with their networth.
Further, in case, the amount lent by a lender is more than ₹10 lakh across P2P platforms, the lender has to produce a certificate to P2P platforms from a practicing Chartered Accountant certifying minimum net-worth of ₹50 lakh.
NBFC-P2P lending platforms have to explicitly and prominently mention their name (as mentioned in the Certificate of Registration) along with their brand name, if any, in all their touch points/ customer interfaces including promotional material and any communication with stakeholders/ participants.