Review of the RBI’s Master Direction on NBFC-P2P Lending Platforms (2017)
The Reserve Bank of India (RBI) issued the Master Direction for Non-Banking Financial Companies – Peer to Peer Lending Platforms (NBFC-P2P) in 2017. These guidelines were designed to regulate P2P platforms that act as intermediaries, providing an online marketplace for peer-to-peer lending. The directions laid down clear guidelines on various aspects of the functioning of NBFC-P2P platforms, ensuring that they maintain transparency, protect both lenders and borrowers, and prevent misconduct.
However, the RBI observed that some NBFC-P2P platforms violated the prescribed rules by promoting P2P lending as an investment product, offering assured returns, liquidity options, and even acting as deposit takers or lenders themselves. To address these issues, the RBI has decided to revise and clarify the provisions of the Master Direction, providing amendments aimed at ensuring better compliance with the original intent of the guidelines.
One of the most notable amendments is the reinforcement of the prohibition against NBFC-P2P platforms offering any credit enhancement or guarantee. The revised guidelines make it clear that these platforms must not assume any credit risk, either directly or indirectly, and any loss of principal or interest shall be borne entirely by the lenders. Additionally, NBFC-P2Ps are now explicitly forbidden from cross-selling insurance products that act as credit enhancement.
The revised directions also strengthen the funds transfer mechanism. Platforms must operate through escrow accounts maintained by a bank-promoted trustee. This ensures that the lenders’ funds are not used for anything other than direct disbursement to the borrower’s bank account, and any cash transactions are strictly prohibited. Moreover, funds cannot remain in escrow accounts beyond one business day (T+1).
The amendments also impose stricter disclosure requirements. NBFC-P2Ps must publicly disclose portfolio performance, including non-performing assets, on their websites and any losses borne by the lenders. These changes promote greater transparency and protect lenders from hidden risks.
Furthermore, the new provisions explicitly prohibit NBFC-P2Ps from promoting P2P lending as an investment product with features such as tenure-linked returns or liquidity options. This ensures that the platforms adhere to their intended role as intermediaries rather than deposit-taking entities.
These revisions emphasize the importance of NBFC-P2P platforms functioning solely as intermediaries, improving transparency, and maintaining the integrity of the P2P lending system. By tightening regulations, the RBI aims to prevent misconduct and enhance the trustworthiness of P2P platforms in India.
