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Informist, Friday, Aug 16, 2024

 

MUMBAI – The Reserve Bank of India has revised guidelines for the peer-to-peer lending platform used by non-banking finance companies in order to elaborate and clarify certain provisions, the central bank said in a notification today.

 

The RBI made these changes after observing that some of these platforms were adopting certain practices which were violative of the existing guidelines. "Such practices include, among others, violation of the prescribed funds transfer mechanism, promoting peer-to-peer lending as an investment product with features like tenure linked assured minimum returns, providing liquidity options and at times acting like deposit takers and lenders instead of being a platform," the central bank said.

 

The peer-to-peer platform will not provide or arrange any credit enhancement or credit guarantee, accoding to existing guidelines. To this, the RBI elaborated further that the platform shall not assume any credit risk, either directly or indirectly, arising out of transactions carried out on its platform. "In other words, entire loss of principal or interest or both, if any, in respect of funds lent by lenders to borrowers on the platform shall be borne by the lenders and adequate disclosures to this effect shall be made to lenders as part of fair practices code specified in para 12 of the MD (Master Directions)," it said. 

 

Further, as per the amended guidelines, the peer-to-peer platform will not cross-sell any product except for loan specific insurance products. It will not cross-sell any insurance product which is in the nature of credit enhancement or credit guarantee.

 

Among other clarifications, it also explained the process of the transfer of funds through escrow accounts. 

"Under this prescribed funds transfer mechanism, funds from the lenders’ bank accounts shall only be transferred to the lenders’ escrow account and shall only be disbursed to the specific borrower's bank
account after ensuring compliance," the RBI said.

 

It also mentioned that the funds from the lender's escrow accounts will not be used for repayment of loans and the funds from the borrower's account will not be used for disbursement of loans. It said that all transactions have to be made from bank accounts and cash transactions are prohibited.

 

It also mentioned that the funds transferred into the lenders' escrow account and borrowers' escrow account shall not remain for a period exceeding 'T+1' days, where 'T' is the date on which the funds are received in accounts. These guidelines will come into effect in the next 90 days, RBI said.

 

The central bank also added new provisions in the master circular, such as, the lending platform must disclose fees which will be charged at the time of lending. "The fees shall be a fixed amount or a fixed proportion of the principal amount involved in the lending transaction. The fees shall not be dependent upon the repayment by the borrower(s)," it said. These provisions will be enforced with immediate effect.  End

 

Reported by Kshipra Petkar

Edited by Tanima Banerjee

 

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