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P2P lending ensure safer investments with stricter norms under RBI guidelines

first_imgDuring the initial phase, since there was no regulation, the sector lacked credibility and trust by lenders as well as borrowers. Even then, the sector did well as on one side there was a lot of demand for credit from borrowers who did not get credit from banks and NBFCs. And, on the other side, there were lenders/investors that were looking for investment opportunities to deploy their surplus funds to earn better returns. The RBI Regulations have put in a lot of checks and balances to protect the interests of all stakeholders. Some of the Regulations that are helpful for lenders include: Also Read – An income drop can harm brain Eligibility Criteria As per RBI Regulations, no NBFC-P2P can commence or carry out P2P Lending business without obtaining the Certificate of Registration (CoR) from the RBI. For registration, the company should have a net owned fund of Rs. 2 crores or higher. This regulation makes sure only serious companies enter the P2P lending business. It ensures that fly by night operators stay away from this business. Process of Registration Also Read – Shallu Jindal honoured with Mahatma AwardFor registration, the company has to make an application in the specified form to the RBI. The RBI has set stringent conditions to be fulfilled. Some of these include the promoters and directors of the company are fit and proper, the company has technological, entrepreneurial and managerial resources, the company has submitted a viable business plan etc. Scope of Activities The RBI has cleared defined the scope of activities that registered P2P lending platforms can undertake. An NBFC-P2P has to act as an intermediary providing an online platform to participants involved in P2P lending. It cannot raise deposits and it cannot lend on its own. It cannot cross-sell other products. The defined scope of activities makes sure the P2P Lending platform is focused on its core activity and avoids any distractions in the form of unwanted diversifications. Prudential Norms A lender can lend a maximum of Rs. 10 lakhs to all borrowers at any point of time, across all P2P Investments platforms. A borrower can take maximum loans of Rs. 10 lakhs at any point of time, across all P2P Investments platforms. A single lender cannot lend more than Rs. 50,000 to the same borrower, across all Investments platforms. The maximum tenure of loans cannot exceed 36 months. This regulation makes sure that a lender does not take too much risk by lending too much across all P2P lending platforms. It also makes sure a borrower does not borrow too much across all P2P Investments platforms as too much of debt may make it difficult for him/her to repay the loans. Fund Transfer Mechanism All money collected from lenders (for disbursement to borrowers) has to be done through escrow account operated by a trustee. Also, all money collected from borrowers in the form of EMI repayments (for transfer to lenders) has to be done through an escrow account. All fund transfers have to be done through and from bank accounts and cash transactions are strictly prohibited. This regulation makes sure the lender’s money is used only for disbursement to borrowers and not for any other purpose. Submission of data to Credit Information Companies (CICs) An NBFC-P2P has to become a member of all 4 CICs, which include CIBIL, Equifax, Experian, and CRIF High Mark. The company has to submit all credit information (including historical data) relating to borrower transactions to the CICs. The company has to update the data regularly on a monthly basis. This regulation ensures all delays/defaults by borrowers are reported to the CICs thereby impacting their credit score negatively. This regulation is good for lenders as it will make sure that borrowers don’t delay/default on loan repayments. A delay/default reported to the CICs will make it difficult for the borrower to get loans in the future from any bank or NBFC or P2P Lending platform. Hence the borrower will have to think ten times before delaying/defaulting on EMI repayment. This regulation will help in lowering the overall delay/default rates. Transparency and Disclosure Requirements An NBFC-P2P has to publicly disclose on its website the portfolio performance including a share of non-performing assets on a monthly basis and segregation by age. Disclosure of portfolio performance including a share of non-performing assets on a monthly basis will give a lender an insight about the robustness of the credit underwriting systems and loan recovery mechanisms of the NBFC-P2P. It helps the lender make an informed decision on whether he/she should invest his/her hard earned money through this platform or not. Participant Grievance Redressal The company has to put in place a Board approved a policy to address participant grievances/complaints. Complaints have to be handled/disposed within one month from the date of receipt. The company has to appoint a Nodal Officer / Principal Nodal Officer. (Raghavendera Pratap Singh, Co-founder, i2iFunding. The views expressed are strictly personal)last_img