Here’s some insight into the recently released RBI Guidelines & how they’ll affect the future of the digital lending industry

Imagine a world where borrowers can acquire fast loans, and that too, without collateral. Or where individuals with enough funds can earn up to 22% interest returns by lending out their extra funds. With that and a host of other benefits it’s no surprise that the P2P industry has been gaining popularity as one of the best investment portfolios in India.

For a nascent industry with just about 30 players, the P2P lending marketplace is expected to be valued at an impressive $4bn – $5bn by 2023. And given its fast-growing potential, the RBI Master Direction’s released on October 4th, 2017 was a much-awaited, celebratory moment for P2P players. As P2P platforms gain official recognition, here’s a brief look at the recent RBI Guidelines on P2P lending and the impact it will have.

1. Registration of P2Ps

Guidelines: Companies that wish to register with RBI as NBFC-P2Ps (Non-Banking Financial Company) are required to own net funds of not less than INR 20 million or a higher amount as specified by the Bank & obtain a certificate of registration.

Impact: The minimum net funds clause ensures that only P2P platforms with appropriate financial backing can enter the marketplace. This also helps eliminate small-time and non-serious players.

2. Transparent Systems

Guidelines: All transactions are to take place via direct bank transfers through escrow accounts. Cash transactions and international fund flow are prohibited.

Impact: The enforcement of digital transactions will enable a structured and transparent P2P marketplace. This will also reduce the threat of money laundering, arbitration and other fraudulent practices.

3. Improved Accountability

Guidelines: The RBI guidelines mandate NBFC-P2Ps to collaborate with CICs (Credit Information Companies) for the following responsibilities

To undertake risk profiling & credit assessment of borrowers, and disclose the same to the investors

To exchange information on borrowers between P2P platforms thru CICs at regular intervals

Impact: The new guidelines increase the responsibility & accountability on the part of P2P platforms. The collaboration with CICs will also help in tracking borrowers & identifying defaulters, thus, regulating a smooth and efficient P2P marketplace.

4. Lender Security

Guidelines: According to the recent RBI guidelines, the following rules are enforced upon lenders operating in the P2P marketplace
The net amount lent by an investor to all the borrowers, at any point of time, shouldn’t exceed INR 10,00,000
The net amount lent by an investor to a single borrower, at any point of time, shouldn’t exceed INR 50,000
The net amount taken by borrower, at any point of time, is capped at INR 10,00,000
An upper limit of 36 months has been imposed on the maturity period of the loans

Impact: Given that P2P marketplaces are relatively new, the above guidelines will enforce caution and limit financial risk for both the lender and the borrower. The net amount restrictions, however, are expected to be relaxed over time.

5. Grievance Redressal

Guidelines: Every NBFC-P2P must have a Board-approved policy that ensures participant complaints are addressed within the stipulated timeframe (not exceeding 1 month).
P2P sites are also mandated to display contact details of the concerned Grievance Redressal Officer on the website.

Impact: This will ensure that the participants have a grievance redressal mechanism to take of their complaints, if any.

6. Tech Support and Security

Guidelines: NBFC-P2Ps are required to maintain built-in safeguards in their IT systems. The RBI guidelines also mandate a Board-approved Business Continuity Plan for the safekeeping of information and documents, and for the servicing of loans for full tenure in case the platforms close down.

In addition to that, an Information System Audit must be conducted at least once in two years by CISA certified external auditors.

Impact: This will encourage P2Ps to integrate stable IT systems to safeguard the personal information of parties from unauthorized access; alteration, destruction, dissemination or disclosure of records and data.

With the onset of new regulations, the P2P industry is expected to further grow at break-neck speed. If you’re a lender looking to cash in top returns, or a borrower seeking fast and efficient loans, P2P platforms are an excellent option. With the stock markets at record high levels, retail investors are really wary of entering the market, while the smarter ones have cashed out their gains. Where do such people invest their monies now ? Welcome to the P2P marketplace.

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