The Reserve Bank of India (RBI) also directed non-banking finance companies (NBFC) to charge a fixed fee, which should not be linked to the borrower’s repayment. The regulator also reiterated that the platform cannot provide credit guarantee.
The banking regulator’s master direction issued on Friday comes into force with immediate effect. Crowdfunding through the P2P platform connects individual lenders with borrowers to facilitate unsecured loans. There are 26 NBFCs-P2P registered with the RBI as of March 31, 2024.
RBI directed NBFC-P2P not to promote the ‘investment product with features like tenure linked assured minimum returns, liquidity options at times acting like deposit takers and lenders instead of being a platform.’
It also said that any loss of principal or interest or both on funds lent by lenders to borrowers on the platform shall be borne by the lenders while adding that the platform cannot provide credit enhancement or credit guarantee.
Further, the platform should obtain a declaration from lenders that he understands that ‘there exists a likelihood of loss of entire principal in case of default by a borrower. The P2P platform shall not provide any assurance or guarantee for the recovery of loans.’ The RBI also barred NBFC-P2P from selling any insurance product in nature of credit enhancement or credit guarantee. Also, NBFC-P2P cannot utilise funds raised from one lender with another. They can only charge a fixed fee, which should not be linked to the borrower’s repayment.”The RBI has clarified multiple ambiguities such as the fact that returns on lending cannot be guaranteed and P2P platforms cannot profit credit enhancement of the loans,” said Bhavin Patel, founder and CEP of LenDenClub, a NBFC-P2P platform
The regulator has retained the Rs 50 lakh cap of the aggregate exposure of a lender to all borrowers. If the amount lent crosses Rs 10 lakh, the lender must provide a net worth certificate from a chartered accountant.
The RBI has said that the platform should only disburse any loan if the lenders and the borrowers have been matched and mapped. Also, individual lenders must approve the individual recipient of the loan, and all concerned participants have signed the loan contract.
Under the fund transfer mechanism, funds from the lenders’ bank accounts shall only be transferred to the Lenders’ Escrow Account. These lender funds can only be disbursed to the specific borrower’s bank account.
The borrower shall transfer the loan repayment amount from his bank account to the Borrowers’ Escrow Account, from where the funds shall only be transferred to the respective lender’s bank account.
The RBI prohibited cash transactions while adding that all fund transfers should be through and from bank accounts.
The NBFC-P2P should disclose the share of non-performing loans on its website, segregated by age. They should also disclose losses born by the lenders on principal or interest or both.