RBI Introduces Caps On Peer-To-Peer Lending

The Reserve Bank of India capped borrowing and lending on a peer-to-peer platform by an individual at Rs 50,000 in its final guidelines after deciding to regulate such entities.

A single person cannot borrow or lend more than Rs 10 lakh in total across such lending platforms at any given time, according to master directions released today. A P2P lending firm will need to have a minimum net-owned fund base of Rs 2 crore.

Eighty percent of the guidelines are similar to rules for non-banking companies, Bhavin Patel, chief executive officer of the LenDen Club told BloombergQuint. “The only concern is capping individual's investment limit at Rs 10 lakh but I am sure the RBI will increase the cap over a period of time.”

The guidelines came more than a year after the central floated a discussion paper and follows the last month's decision to regulate P2P platforms on a par with non-bank companies. Any entity acting as an intermediary and providing loan services online or otherwise will be considered a P2P platform.

More than 30 such startups have come up in the last four years, including Faircent, i2ifunding, Lenden Club and Billionloans.

Such platforms rely on analytics and algorithms to assess a borrower's risk profile. LenDen Club's Patel said the RBI granting rights to P2P businesses to provide all historical data to credit bureaus is a positive move.

Existing as well aspiring P2P lending firms will have to apply for a certificate of registration with the RBI, according to the guidelines. Existing companies will have to comply within three months.

If an application is rejected, the platform will have to wind down its operations. An in-principle approval to an aspiring applicant will last up to 12 months, following which the RBI will grant the final certificate of registration, the central bank said.

Fund transfers between participants on the P2P lending platform shall be through an escrow account, 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, according to the regulator.

The trustee shall mandatorily be promoted by the bank maintaining the escrow accounts, the RBI said. All fund transfers shall be through bank accounts and cash transactions are strictly prohibited, the RBI said.

• P2P lending firms will not be allowed to permit any foreign fund flows through its platform.
• P2P lending platforms will not allow any secured lending linked to its platform, the regulator said.
• They can't provide or arrange any credit enhancement or credit guarantee.
• Such a company will also not hold on its own balance sheet funds received from lenders or borrowers, the RBI said.
• It will not be allowed to cross-sell any other financial product, other than a loan-specific insurance plan.