Eligibility Criteria to Obtain P2P Lending License in India
The following are the pre-conditions that the P2P license RBI seeker must observe before filing the license application:
- The applicant should be registered as a company under the Companies Act 1956
- The applicant company should be incorporated as an NBFC.
- Minimum net owned funds of the applicant should be at least INR 2 Crores
- The applicant company must have the entrepreneurial, technological, and managerial resources necessary to provide p2p lending services.
- The promoters and directors of the company must meet the Fit and Proper criteria
- The applicant should possess a website to act as a P2P Lending platform in India.
- The company's management's general character should not discriminate against the public interest.
- The applicant company must have implemented a robust information technology system
Scope of Activities
The following are the guidelines defined under the RBI Act of the NBFC Peer-to-Peer (P2P) lending License defining the scope of activities:
Regulations:
The RBI drafting regulations for P2P Lending license are as follows:
- A P2P operator must act as an intermediary to provide an online marketplace or platform to the participants involved in Peer-to-Peer lending.
- A Peer-to-Peer lending license holder must adhere to legal requirements applicable to the participants as prescribed under relevant laws.
- An NBFC P2P operator must store and process all data relating to its activities and participants on hardware located within India.
Restrictions:
- An NBFC Peer-to-Peer lending license holder must not raise deposits as defined in the Act.
- A P2P license RBI holder must not lend credit on its own.
- A Peer-to-Peer lending license holder must not provide or arrange any credit enhancement or credit guarantee.
- A P2P license holder must not facilitate or permit any secured lending linked to its platform, i.e., A P2P must only permit clean loans.
- A P2P license holder must not hold, on its balance sheet, funds received from lenders or borrowers for servicing loans.
- A Peer-to-Peer lending license holder must not cross-sell any product except for loan specific insurance products.
- A P2P license holder must not permit the international flow of funds.
Undertakings:
- An RBI P2P license RBI holder must undertake due diligence on the participants.
- A Peer-to-Peer lending license holder must undertake credit assessment and risk profiling of the borrowers. It must also disclose the same to its prospective lenders.
- An NBFC Peer-to-Peer lending license holder must require the prior and explicit consent of the participant to access their credit information.
- An RBI P2P license holder must undertake documentation of loan agreements and other related documents.
- An NBFC Peer-to-Peer lending license holder must assist in disbursement and loan amount repayments.
- An RBI P2P operator must render services to recover loans originated on the platform.
- An NBFC P2P license holder must not undertake any activity other than those stated above.
Prudential Norms
An NBFC P2P registration must maintain a leverage ratio not exceeding 2.
A lender's aggregate exposure to all borrowers at any point across all P2P platforms must be subject to a cap of fifty lakh rupees. But such lenders' investments on P2P platforms must be consistent with their net worth. So, the lender investing more than ten lakh rupees across P2P platforms must produce a certificate to P2P platforms from a practicing Chartered Accountant. The CA then must certify the minimum net worth of ₹50,00,000.
- The aggregate loans taken by a borrower at any point across all P2Ps must be subject to a cap of ten lakh rupees.
- Also, the exposure of a single lender to the same borrower across all P2Ps, must not exceed fifty thousand rupees.
- Altogether, the maturity of the loans must not exceed 36 months.
- Lastly, a P2P registration must obtain a certificate from the borrower or lender that states they are adhering to the prescribed limits.
Operational Guidelines
- An NBFC-P2P must have a Board Approved Policy for the following purposes:
- Setting out the eligibility criteria for participants on it.
- Determining the pricing of services provided by it.
- Setting out the rules for matching lenders with borrowers in an equitable and non-discriminatory manner.
- The outsourcing of any activity by NBFC-P2P must not diminish its obligations. It must also be responsible for the actions of its service providers, including recovery agents. Also, the P2P must be accountable for the confidentiality of information pertaining to the participant.
- The P2P must not disburse a loan unless the individual lender has approved the recipient of the loan and all concerned participants have signed the loan contract.
Disclosures
An NBFC-P2P must disclose the relevant information to the following:
To lender
The P2P licensee must inform the lender about the borrower(s), including personal identity, required amount, interest rate sought and credit score as gathered by them.
Also, the P2P must detail to the lender all the terms and conditions of the loan, including likely return, fees and taxes.
To borrower
The P2P licensee must inform the borrower about the lender(s), including the proposed amount and interest rate offered but excluding personal identity and contact details.
Disclosure on website
The P2P must disclose the following information on its platform:
- Overview of credit assessment, score methodology, and other factors considered
- Disclosures on usage or protection of data
- Grievance redressal mechanism
- Portfolio performance, including share of non-performing assets on a monthly basis and segregation by age
- Broad Business Model
NBFC-P2P must ensure that providing services to a participant, who has applied for such services, is backed by appropriate agreements between the participants and the NBFC-P2P. Also, the agreements must categorically specify all the terms and conditions among the borrower, the lender and the NBFC-P2P. The interest rates displayed on the platform must be in Annualized Percentage Rate (APR) format.