The Reserve Bank of India (RBI) is out with “Master Directions” regarding non-banking financial companies or peer to peer lenders. RBI indicated last month P2P lenders would not be considered banks. The governmental directive is officially known as the “Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017.”
These NBFC-P2P firms will need to obtain a Certificate of Registration (CoR) from Bank to be able to operate. Every existing and aspiring NBFC-P2P will need to complete an application for registration to the Department of Non-Banking Regulation, Mumbai of the Bank. Existing NBFC-P2Ps have three months from the issuance of these Directions to apply.
The following conditions, among others, must be fulfilled by P2P lenders:
- 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.
Importantly, P2P lenders are not allowed to:
- Hold deposits
- provide any credit guarantees
- Lend on its own
- Not permit international flow of funds
Aggregate exposure of a lender to all borrowers is subject to a 10 Lakh cap. Exposure by a single lender to a single borrower may not exceed R 50,000.
There is plenty more information available here. Initially, it appears that traditional banking has been given the upper hand over the long term.