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Is Peer-to-Peer Lending Allowed by RBI?

By Anurag Srivastva | 30 Mar 2020

Peer-to-peer lending is a normal economic activity and the RBI does not allow or disallow such activities. RBI does regulate P2P lending by prescribing some basic rules and prudential norms for P2P platforms. The RBI P2P norms apply to the peer-to-peer lending platforms and not to the lenders or the borrowers on the platform.

RBI regulation of P2P lending

On 04th October 2018, the RBI issued directions for NBFCs operating P2P lending platforms. The RBI NBFC P2P Lending Rules have been enacted for this purpose. Here are some of the salient features.

• Any NBFC entering the P2P lending business will have to obtain a separate registration certificate from the RBI by applying for NBFC-P2P registration
• Any funding on the P2P lending platform between borrowers and lenders shall be purely through the escrow account only. Cash transactions are not permitted
• The p2p lending platform will only act as a facilitating intermediary for the process. As a result, the P2P lending platform shall not accept deposits nor give loans from its own balance sheet
• The p2p lending platform shall not allow any international flow of funds either as a borrower or as a lender on the platform; or even as a supplier of capital
• P2P lending platforms will not be allowed to cross sell products on the platform except for specific loan-specific insurance covers
• The P2P platform shall conduct credit assessment and due diligence of borrowers and share the same with lenders to enable them to select the best lending company
• Similarly, the p2p lending company will also provide assistance in documentation and disbursal of loans and help lenders in collection and recovery

Prudential norms prescribed by RBI

To ensure orderly growth of the P2P lending business in India, the RBI has prescribed some basic prudential norms that platforms need to adhere to.

• The p2p lending company shall have a minimum net worth of Rs.2 crore to ensure it is well capitalized. Such limits will be subject to modifications
• The aggregate borrowing of a single individual across all p2p lending platforms shall be limited to a maximum level of Rs.10 lakhs. This limit will have to be monitored by the P2P lending platform on a continuous basis
• A single lender on the P2P lending platform cannot have an exposure of more than Rs.50,000 to a single borrower
• The maturity of the loan given on the P2P lending platform cannot exceed 36 months at any point of time.

To ensure clean money flows, the RBI regulations have barred cash transactions and all flows must be routed through an escrow account only. RBI is proceeding cautiously on P2P lending but it is likely to help the industry grow in a systematic way.