What is the Landscape of RBI Certified NBFC P2P Lending Platforms?

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What is the Landscape of RBI Certified NBFC P2P Lending Platforms?

The NBFC-P2P is a new category under the Non-Banking Financial Institutions (NBFC) which includes the business of Peer to Peer Lending. The P2P lending service was in India before early 2014 but there were no regulations around it until 2017. In October 2017, the Reserve Bank of India (RBI) announced a set of guidelines to regulate the expanding peer-to-peer lending space in India. Now the P2P lending platforms have to obtain an NBFC license as an NBFC as per the guidelines.

Traditional banks cater for the lending needs of a particular section of the economy because of which many businesses do not get the facility of lending from the banks. But, as per the reports, the NBFC P2P will grow to $10.5 billion by 2026 growing at 21.6% between 2021 and 2026. The Peer-to-Peer is a part of a lucrative lending market, and the has one of the fastest growth rates. Check below how to set up an NBFC-P2P lending platform business.

What is NBFC-P2P Lending?

The NBFC P2P lending platforms provide investors with a chance to earn competitive annual returns by investing in unsecured personal loans to other consumers through various P2P platforms. P2P lending is a high-risk/high-return alternative investment, which will provide diversification benefits.

Investing through a P2P platform works well if the risks are managed. Investments are not liquid, the lender has to wait for the borrower to repay the loan before the entire principal amount is returned. 

Eligibility to Become an NBFC-P2P

To obtain an NBFC license for P2P lending and a certificate of NBFC registration from RBI, the following requirements must be fulfilled.

• The company is incorporated in India.
• Has the necessary technological, entrepreneurial and managerial resources to offer such services to the participants.
• Has the adequate capital structure to set up a P2P Lending Platform.
• The Promoters and Directors of the company are fit and proper.
• Submitted a viable business plan for conducting the business of Peer Peer Lending Platform and having a robust and secure Information Technology system.
• Any other condition as may be specified by the Bank, fulfilment 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.
• Lastly, have a net owned fund of upto INR 2 crores or more as per the guidelines of the RBI.

Registration Process of NBFC-P2P

Every existing and prospective NBFC-P2P must file an application for registration to the Department of Regulation, Mumbai of the Bank in the form that will be specified by the bank for the purpose. However, the existing NBFC-P2P must apply within three months from the issuance of these Directions. There are two types of NBFCs that have different NBFC registration process and it is as follows:

Prospective NBFC-P2P Registration

• After satisfying all the above conditions, the bank can grant in-principle approval for setting a Peer-to-Peer Lending NBFC Platform to the conditions which it considers fit to impose.
• The in-principle approval is valid for twelve months from the date of granting the approval.
• In twelve months, the company can put in place the technology platform. However, can enter into the legal documentation required and report the position of compliance.
• If the Bank is satisfied that the entity is ready to commence operations. Then it will grant a Certificate of NBFC Registration (CoR) as an NBFC-P2P.

Existing NBFC-P2P Registration

• The existing Peer-to-Peer Lending NBFC Platforms have to register themselves with the Bank within 3 months from the date of commencement of this notification. These companies that are registering as NBFC-P2P must have a permit to continue the business of P2P lending platforms. Till their permit for the issuance of a Certificate of Registration is rejected. 
• The Bank can cancel the CoR granted to an NBFC-P2P, in case–
  • Ceases to carry on the business of Peer-to-Peer Lending Platform in India.
  • Has failed to comply with any condition of the P2P business.
  • Is no longer eligible to hold the CoR.
  • Fails to –
    • Comply with any Direction issued by the Bank.
    • Maintain accounts, publish and disclose its financial position in accordance with the requirements of any law or any Direction or order issued by the Bank.
    • Submit or offer for inspection of its books of account or other relevant documents when so demanded by the Bank.

RBI Regulations for the NBFC-P2P

The NBFC P2P is a non-banking institution involved in the business of lending. The RBI has regulated P2P lending to protect the interests of lenders and borrowers. As per the provisions, an NBFC-P2P becomes a member of all CICs (Credit Information Companies) and has to submit data at regular intervals. Currently, in India, there are 4 CICs and these are as follows:

• Credit Information Bureau (India) Limited (CIBIL).
• Equifax Credit Information Services Private Limited (ECIS).
• Experian Credit Information Company of India Private Limited.
• CRIF High Mark Credit Information Services Private Limited.

However, the CICs should maintain and update the information of borrowers on a regular basis. For instance monthly, weekly or on any short intervals as per the mutual understanding of the NBFC P2P and CIC. Along with this, the CIC must ensure that the information of the borrower is up-to-date, accurate and complete.

Risks in the NBFC-P2P Business

• Poorly executed P2P lending business models can lead to bankruptcy.
• The absence of trust leads to the misappropriation of funds from platform firms.
• Possibility of data leakage if data privacy is breached through the platform’s website
• If AML and KYC are breached, the platform firms can use the money to fund illegal businesses.
• The lack of an adequate recovery and resolution process (RRP) can lead to the lender’s money being at stake.
• A lack of cyber security in the platform will allow hackers to easily access confidential data.

Conclusion

To conclude, the major financial market will be covered under the umbrella of NBFC-P2P. The people who are choosing banks to fulfil their financial needs will shift to lending platforms as the process of lending is very efficient. The returns will be lucrative for the lenders of these P2P platforms. This will continue to be the case along with more checks and processes introduced by P2P platforms in order to keep NPAs in check.

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