P2P Lending RBI

The Reserve Bank of India (RBI) classifies peer-to-peer (P2P) Lending platforms under the Non-Banking Financial Companies (NBFCs) category. P2P lending platforms are an integral part of the Indian financial ecosystem.  

The Indian financial ecosystem has seen major shifts in the way banking entities and NBFCs are choosing to raise debts. Now, let’s explore the regulations that shape India’s P2P lending ecosystem.

What is a P2P Lending Platform? 

A P2P lending platform works much like crowdfunding, where it pools savings from individuals, Hindu Undivided Families (HUFs), and companies.. When a borrower applies for a loan, the Lenders can bid in the auction for the borrower’s loan requirements. The borrower is free to accept or reject the bid.  

Who Can Participate in a P2P Lending Platform? 

RBI guidelines allow any individual, HUF (Hindu Undivided Family), firm, society, or company to participate in a P2P lending platform. 

As per new guidelines, the RBI raised the investment limit for individuals by five times to Rs 50 lakhs.

2017 Guidelines for P2P Lending 

Under RBI’s Master Directions for NBFC Peer-to-Peer Lending Platform, the following guidelines were issued in 2017:

• Only NBFCs are allowed to register as P2P lenders with explicit permission from the RBI.
• All existing and non-NBFC P2P should get themselves registered with the Department of Non-Banking Regulation, Mumbai. 
• P2P lenders should obtain a certificate of registration from the RBI. 
• P2P platforms should maintain a net-owned fund of at least Rs 20 million, besides fulfilling other conditions laid down by the RBI. 
• The leverage ratio for P2P lenders should not exceed 2.

Conditions To Get Registered as P2P Lending Platforms 

• The company should have adequate technological and managerial resources.
• It should be incorporated in India and should have a Certificate of Registration (CoR). 
• It should have an adequate capital structure and management for undertaking a P2P lending business.  
• Any other condition mentioned by the bank for commencing or carrying on business in India.

Once all conditions are fulfilled, the RBI grants in-principle approval valid for 12 months for the platform. Once the platform is set up, RBI grants a CoR certificate to the lending platform as an NBFC-P2P, subject to conditions deemed fit by the bank. 

Process of Registration for Lenders and Borrowers

Lenders and borrowers must register themselves on a P2P lending platform. Every P2P platform conducts screening tests and KYC procedures to verify potential lenders and borrowers. For instance, LenDenClub has very clear and strict rules regarding its terms of service. 

Apart from KYC verification, the LenDenClub runs fraud checks, obtains a Credit Information Bureau credit rating for users, and conducts residence or employment verification at your place of employment.

RBI-approved P2P Lending Platform

P2P lending offers a safe and rewarding investment for lenders and a great medium to access credit for borrowers. Understanding the RBI’s guidelines for Peer-to-Peer lending is important to harnessing the potential of this landscape. Therefore, staying informed is crucial, and opting for RBI-approved platforms like LenDenClub, with a demonstrated track record, is the right choice.