Master Direction DNBR (PD) 090/ 03.10.124/ 2017-18
October 04, 2017
Master Directions – Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017
The Reserve Bank of India, (hereinafter referred to as “the Bank”) issued a Notification No DNBR.045/CGM (CDS)-2017 dated August 24, 2017 in terms of sub-clause (iii) of clause(f) of section 45I of the Reserve Bank of India Act, 1934 (hereinafter referred to as “the Act”) and on being satisfied that it is necessary to do so, in exercise of the powers conferred under section 45IA, 45JA, 45L,and 45M of the Act, and of all the powers enabling it in this behalf, hereby issues these Directions for compliance of the same by every Non-Banking Financial Company that carries on the business of a Peer to Peer Lending Platform.
- Short title and commencement of the Directions:
(1) These Directions shall be known as the Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017.
(2) These Directions shall come into force with immediate effect.
- Applicability of the Directions
These Directions shall apply to every Non-Banking Financial Company- Peer to Peer Lending Platform (NBFC-P2P) as defined in these Directions.
These Directions provide a framework for the registration and operation of NBFC-P2Ps in India.
(1) In these Directions, unless the context otherwise requires, the terms used herein shall bear the meanings assigned to them below —
- “Company” means a company as defined in clause (20) of section 2 of the Companies Act, 2013;
- “Leverage Ratio” means the Total Outside Liabilities divided by Owned Funds, of the NBFC-P2P.
- “Non-performing asset” (NPA) means a loan where interest and/ or installment of principal remain overdue for a period of 90 days or more.
- “Participant” means a person who has entered into an arrangement with an NBFC-P2P to lend on it or to avail of loan facilitation services provided by it;
- ”Peer to Peer Lending Platform” means an intermediary providing the services of loan facilitation via online medium or otherwise, to the participants as defined at Item (iv) of sub-paragraph (1) of paragraph 4 of these directions;
- “Non-banking financial company – Peer to Peer Lending Platform” (NBFC-P2P) means a non-banking institution which carries on the business of a Peer to Peer Lending Platform.
(2) Words or expressions used in these Directions but not defined herein and defined in the Act or in the Companies Act, 2013 shall have the same meaning as assigned to them under those Acts.
(1) Eligibility Criteria
(i) No non-banking institution other than a company shall undertake the business of Peer to Peer Lending Platform.
(ii) No NBFC-P2P shall commence or carry on the business of a Peer to Peer Lending Platform without obtaining a Certificate of Registration (hereinafter referred to as “CoR”) from the Bank. Provided that an entity carrying on the business of a Peer-to-Peer Lending Platform as on the effective date of these directions, can continue to do so, subject to the conditions laid down in sub-paragraph (2)(vii) in this Paragraph.
(iii) Every company seeking registration with the Bank as an NBFC-P2P shall have a net owned fund of not less than rupees twenty million or such higher amount as the Bank may specify.
(2) Process of Registration
(i) Every existing and prospective NBFC-P2P shall make an application for registration to the Department of Non-Banking Regulation, Mumbai of the Bank, in the form which will be specified by the Bank for the purpose. Existing NBFC-P2Ps shall apply within three months from the issuance of these Directions.
(ii) The Bank, for the purpose of considering the application for registration, shall require the following conditions, among others, to be fulfilled:
- The company is incorporated in India;
- The company has the necessary technological, entrepreneurial and managerial resources to offer such services to the participants;
- The company has the adequate capital structure to undertake the business of Peer to Peer Lending Platform;
- The promoters and the Directors of the company are fit and proper;
- The general character of the management of the company is not prejudicial to the public interest;
- The company has submitted a plan for, or implemented, a robust and secure Information Technology system;
- The company has submitted a viable business plan for conducting the business of Peer to Peer Lending Platform;
- Public interest shall be served by the grant of CoR;
- Any other condition as may be specified by the Bank, fulfillment 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.
In case of prospective NBFC-P2Ps
(iii) The Bank may, after being satisfied that the conditions specified under paragraph 5(2)(ii) are fulfilled, grant in-principle approval for setting up of a Peer to Peer Lending Platform, subject to such conditions which it may consider fit to impose.
(iv) The validity of the in-principle approval issued by the Bank will be twelve months from the date of granting such in-principle approval.
(v) Within the period of twelve months, the company shall put in place the technology platform, enter into all other legal documentations required and report position of compliance with the terms of grant of in-principle approval to the Bank.
(vi) The Bank may, after being satisfied that the entity is ready to commence operations, grant a CoR as an NBFC–P2P, subject to conditions as deemed fit by the Bank.
In case of existing NBFC-P2Ps
(vii) Companies that are undertaking the business of Peer to Peer Lending Platform, as defined at paragraph 4(1)(v) of these directions, as on the date of effect of these directions, shall apply for registration as an NBFC-P2P to the Bank within 3 months from that date. Such companies, which have applied to the Bank for registration as an NBFC – P2P, shall be permitted to continue the business of a Peer to Peer Lending Platform till their application for issuance of CoR is rejected, subject to such conditions, including winding down of business, as the Reserve Bank may impose.
(viii) The Bank may cancel the CoR granted to an NBFC-P2P, if such company –
- ceases to carry on the business of Peer to Peer Lending Platform in India; or
- has failed to comply with any condition subject to which the CoR has been issued to it; or
- is no longer eligible to hold the CoR; or
- at any time fails to fulfill any of the conditions referred to in paragraphs 5(2)(ii) and 5(2)(v); or
- fails to –
(i) comply with any Direction issued by the Bank; or
(ii) 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; or
(iii) submit or offer for inspection its books of account or other relevant documents when so demanded by the Bank.
- Scope of Activities
(1) An NBFC-P2P shall-
- act as an intermediary providing an online marketplace or platform to the participants involved in Peer to Peer lending;
- not raise deposits as defined by or under Section 45I(bb) of the Act or the Companies Act, 2013;
- not lend on its own;
- not provide or arrange any credit enhancement or credit guarantee;
- not facilitate or permit any secured lending linked to its platform; i.e. only clean loans will be permitted;
- not hold, on its own balance sheet, funds received from lenders for lending, or funds received from borrowers for servicing loans; or such funds as stipulated in paragraph 9;
- not cross sell any product except for loan specific insurance products;
- not permit international flow of funds;
- ensure adherence to legal requirements applicable to the participants as prescribed under relevant laws.
- store and process all data relating to its activities and participants on hardware located within India.
(2) Further, NBFC-P2P shall-
- undertake due diligence on the participants;
- undertake credit assessment and risk profiling of the borrowers and disclose the same to their prospective lenders;
- require prior and explicit consent of the participant to access its credit information;
- undertake documentation of loan agreements and other related documents;
- provide assistance in disbursement and repayments of loan amount;
- render services for recovery of loans originated on the platform.
(3) NBFC-P2P shall not undertake any activity other than those stated in paras 6(1) and 6(2) of these Directions. Deployment of investible funds by an NBFC-P2P in instruments specified by the Bank, not for trading, shall however be permitted.
- Prudential Norms
(1) NBFC-P2P shall maintain a Leverage Ratio not exceeding 2.
(2) The aggregate exposure of a lender to all borrowers at any point of time, across all P2Ps, shall be subject to a cap of ₹ 10,00,000/-.
(3) The aggregate loans taken by a borrower at any point of time, across all P2Ps, shall be subject to a cap of ₹ 10,00,000/-.
(4) The exposure of a single lender to the same borrower, across all P2Ps, shall not exceed ₹ 50,000/-.
(5) The maturity of the loans shall not exceed 36 months.
(6) P2Ps shall obtain a certificate from the borrower or lender, as applicable, that the limits prescribed above are being adhered to.
- Operational Guidelines
(1) NBFC-P2P shall have a Board approved policy in place –
- 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.
(2) The outsourcing of any activity by NBFC-P2P does not diminish its obligations and it shall be responsible for the actions of its service providers including recovery agents and the confidentiality of information pertaining to the participant that is available with the service providers.
(3) No loan shall be disbursed unless the individual lender/s have approved the individual recipient/s of the loan and all concerned participants have signed the loan contract.
- Fund Transfer Mechanism
Fund transfer between the participants on the Peer to Peer Lending Platform shall be through escrow account mechanisms which will be operated by a trustee. At least two escrow accounts, one for funds received from lenders and pending disbursal, and the other for collections from borrowers, shall be maintained. The trustee shall mandatorily be promoted by the bank maintaining the escrow accounts. All fund transfers shall be through and from bank accounts and cash transaction is strictly prohibited. The mechanism as described in the Annex-I may be adopted by the NBFC-P2P.
- Submission of data to Credit Information Companies (CICs)
(1) An NBFC-P2P shall become member of all CICs and submit data (including historical data) to them.
(2) NBFC-P2P shall:
(i) keep the credit information (relating to borrower transactions on the platform) maintained by it, updated regularly on a monthly basis or at such shorter intervals as may be mutually agreed upon between the NBFC-P2P and the CICs;
(ii) take all such steps which may be necessary to ensure that the credit information furnished by it is up to date, accurate and complete;
(iii) include necessary consents in the agreement with the participants for providing the required credit information;
- Transparency and Disclosure Requirements
(1) An NBFC-P2P shall be required to disclose the following:
(i) to the lender
- details about the borrower/s including personal identity, required amount, interest rate sought and credit score as arrived by the NBFC-P2P.
- details about all the terms and conditions of the loan, including likely return, fees and taxes;
(ii) to the borrower – details about the lender/s including proposed amount, interest rate offered but excluding personal identity and contact details;
(iii) publicly disclose on its website:
- overview of credit assessment/score methodology and factors considered;
- disclosures on usage/protection of data;
- grievance redressal mechanism;
- portfolio performance including share of non-performing assets on a monthly basis and segregation by age; and
- its broad business model.
(2) NBFC-P2P shall ensure that the providing of services to a participant, who has applied for availing of such services, is backed by appropriate agreements between the participants and the NBFC-P2P. The agreements shall categorically specify all the terms and conditions among the borrower, the lender and the NBFC-P2P.
(3) The interest rates displayed on the platform shall be in Annualized Percentage Rate (APR) format.
- Fair Practices Code
(1) An NBFC-P2P shall put in place a Fair Practices Code, based on the Guidelines outlined herein, with the approval of its Board. The same should be put up on its web-site, for the information of various stakeholders.
(2) NBFC-P2P shall be required to obtain explicit affirmation from the lender stating that he/ she has understood the risks associated with the proposed transaction and that there is no guarantee of return and that there exists a likelihood of loss of entire principal in case of default by a borrower. The platform shall not provide any assurance for the recovery of loans. Further, the platform shall display a caveat that “Reserve Bank of India does not accept any responsibility for the correctness of any of the statements or representations made or opinions expressed by the NBFC-P2P, and does not provide any assurance for repayment of the loans lent on it”.
(3) In the matter of recovery of loans, NBFC-P2P shall ensure that the staff are adequately trained to deal with the participants in an appropriate manner and shall not resort to harassment viz; persistently bothering the borrowers at odd hours, use of coercion for recovery of loans, etc.
(4) NBFC-P2P shall ensure that any information relating to the participants received by it is not disclosed to any third party without the consent of the participants.
(5) The Board of Directors shall also provide for periodic review of the compliance of the Fair Practices Code and the functioning of the grievances redressal mechanism at various levels of management. A consolidated report of such reviews shall be submitted to the Board at regular intervals, as may be prescribed by it.
- Participant Grievance Redressal
(1) An NBFC-P2P shall put in place a Board approved policy to address participant grievances/complaints. Complaints shall be handled/ disposed of by NBFC-P2P within such time and in such manner as provided for in its Board approved policy, but in any case not beyond a period of one month from the date of receipt.
(2) At the operational level, NBFC-P2P shall display the following information prominently, for the benefit of participants, on the website:
(i) the name and contact details (Telephone / Mobile Nos. as also email address) of the Grievance Redressal Officer who can be approached for resolution of complaints against the NBFC-P2P.
(ii) that if the complaint / dispute is not redressed within a period of one month, the participant may appeal to the Customer Education and Protection Department of the Bank.
- Information Technology Framework, Data Security and Business Continuity Plan
(1) Business of an NBFC-P2P shall be primarily Information Technology (IT) driven. The technology should be scalable to handle growth in business.
(2) There should be adequate safeguards built in its IT systems to ensure that it is protected against unauthorized access, alteration, destruction, disclosure or dissemination of records and data. The Bank may from time to time, prescribe technical specifications, as deemed fit.
(3) NBFC-P2P should have a Board approved Business Continuity Plan in place for safekeeping of information and documents and servicing of loans for full tenure in case of closure of platform.
(4) Information System Audit of the internal systems and processes shall be in place and shall be conducted at least once in two years by CISA certified external auditors. Report of the external auditor shall be submitted to the Regional Office of the Department of Non-Banking Supervision of the Bank, under whose jurisdiction the Registered Office of the NBFC-P2P is located, within one month of submission of the report by the external auditor.
(5) There shall be reasonable arrangements in place to ensure that loan agreements facilitated on the platform will continue to be managed and administered by a third party in accordance with the contract terms, if the NBFC-P2P ceases to carry on the P2P activity.
(6) NBFC-P2P would be required to conform with Master Direction DNBS.PPD. No. 04/66.15.001/2016-17 dated June 8, 2017 on Information Technology Framework for NBFC Sector, as stipulated in Section A from inception.
- Fit and Proper Criteria
(1) An NBFC-P2P shall
(i) ensure that a policy is put in place, with the approval of the Board of Directors, setting out ‘Fit and Proper’ criteria to be met by its directors. These criteria shall be consistent with the requirements contained in Annexes II to IV;
(ii) ensure that Directors meet the fit and proper criteria at the time of their appointment and on an ongoing basis, certify and inform the same to the Bank on a half-yearly basis;
(iii) obtain a declaration and undertaking from the Directors giving additional information. The declaration and undertaking shall be on the lines of the format given in Annex III;
(iv) obtain a Deed of Covenants signed by the Directors, which shall be in the format as given in Annex IV;
(v) advise the Bank of any change of Directors, or key management personnel, and issue a certificate from the Managing Director/CEO of the NBFC-P2P that fit and proper criteria in selection of the Directors have been followed. The statement must reach the Regional Office of the Department of Non-Banking Supervision of the Bank under whose jurisdiction the Registered Office of the NBFC-P2P is located, within 15 days of the change. An annual statement shall be submitted by the CEO of the NBFC-P2P to the said Regional Office, giving the names of its Directors for the quarter ending on March 31, which should be certified by the auditors.
The Bank, if it deems fit and in public interest, may independently assess whether the directors are, individually or collectively, fit and proper and the NBFC-P2P shall remove the concerned director/s, on being advised by the Bank to do so.
- Requirement to obtain prior approval of the Bank for allotment of shares, acquisition or transfer of control of NBFC-P2P
(1) Prior written permission of the Bank shall be required for –
(i) any allotment of shares which will take the aggregate holding of an individual or group to equivalent of 26 per cent and more of the paid up capital of the NBFC-P2P;
Explantation: For the purpose of this paragraph, the term
- “holding” refers to both direct and indirect holding, beneficial or otherwise. The holding will be computed with reference to the holding of the applicant, relatives (where the applicant is a natural person) and associated enterprises.
- “relative” has the same meaning as assigned under section 2(77) of the Companies Act, 2013.
- “associate entreprise” has the same meaning as assigned to it in Explanation I to Section 12B of the Banking Regulation Act, 1949.
(ii) any takeover or acquisition of control of an NBFC-P2P, which may or may not result in change of management;
(iii) any change in the shareholding of an NBFC-P2P, including progressive increases over time, which would result in acquisition by/ transfer of shareholding to, any entity, of 26 per cent or more of the paid up equity capital of the NBFC-P2P;
Provided that, prior approval would not be required in case of any shareholding going beyond 26% due to buyback of shares / reduction in capital where it has approval of a competent Court. The same is to be reported to the Bank not later than one month from its occurrence;
(iv) any change in the management of the NBFC-P2P which would result in change in more than 30 per cent of the Directors, excluding independent Directors;
(v) any change in shareholding that will give the acquirer a right to nominate a Director.
Application for Prior Approval
(2) An NBFC-P2P shall submit an application, on the company letter head, for obtaining prior approval of the Bank, along with the following documents:
(i) Information about the proposed Directors/ shareholders as per Annex V;
(ii) Sources of funds of the proposed shareholders acquiring the shares in the NBFC-P2P;
(iii) Declaration by the proposed Directors/ shareholders that they are not associated with any unincorporated body that is accepting deposits;
(iv) Declaration by the proposed Directors/ shareholders that they are not associated with any company, the application for CoR of which has been rejected by the Bank;
(v) Declaration by the proposed Directors/ shareholders that they have not been convicted of any crime and that there are no pending criminal cases against them, including proceedings initiated under section 138 of the Negotiable Instruments Act,1881; and
(vi) Bankers’ Report on the proposed Directors / shareholders.
(3) Applications in this regard shall be submitted to the Regional Office of the Department of Non-Banking Supervision of the Bank where the company is registered.
Public Notice about Change in Control/ Management
(4) A public notice of at least 30 days shall be given before effecting the sale of, or transfer of the ownership by sale of shares, or transfer of control, whether with or without sale of shares. Such public notice shall be given by the NBFC-P2P and also by the other party or jointly by the parties concerned, after obtaining the prior permission of the Bank.
(5) The public notice shall indicate the intention to sell or transfer ownership/control, the particulars of transferee and the reasons for such sale or transfer of ownership/ control. The notice shall be published in at least one leading national and in one leading local (covering the place of registered office) vernacular newspaper.
Information with respect to change of address, directors, auditors, etc. to be submitted
(6) Every NBFC-P2P shall communicate, not later than one month from the occurrence of any change in:
(i) the complete postal address, telephone number/s and fax number/s of the registered / corporate office;
(ii) the residential addresses of the Directors of the company;
(iii) the names and office address of the auditors of the company; and
(iv) the specimen signatures of the officers authorised to sign on behalf of the NBFC-P2P to the Regional Office of the Department of Non-Banking Supervision of the Bank within whose jurisdiction the Registered Office of the NBFC-P2P is located.
- Reporting Requirements
(1) The Bank may, from time to time, prescribe return/s to be submitted by NBFC-P2P, as it deems fit.
(2) The following quarterly statements shall be submitted to the aforesaid Regional Office within 15 days after the quarter to which these relate.
(i) A statement, showing the number and amount in respect of loans;
- disbursed during the quarter;
- closed during the quarter; and
- outstanding at the beginning and at the end of the quarter, including the number of lenders and borrowers outstanding as at the end of the quarter
(ii) The amount of funds held in the Escrow Account, bifurcated into funds received from lenders and funds received from borrowers, with credit and debit summations for the quarter.
(iii) Number of complaints outstanding at beginning and at end of quarter, and disposed of during the quarter, bifurcated as received from
- lenders and
(iv) The Leverage Ratio, with details of its numerator and denominator.
The Bank may, at any time, cause an inspection by one or more of its officers or employees, or by any other agency as Bank may deem fit, of any NBFC-P2P.
The Bank may, if it considers necessary for avoiding any hardship or for any other just and sufficient reason, grant extension of time to comply with or exempt any NBFC-P2P or class of NBFC-P2Ps or all NBFC-P2Ps, from all or any of the provisions of these Directions, either generally or specially, and subject to such conditions as it may impose.
If any question arises relating to the interpretation of these directions, the matter shall be referred to the Bank and the decision of the Bank shall be final.
Chief General Manager