India Introduces New Laws, Cap Regarding P2P Lending

The Reserve Bank of India (RBI), in a move to protect the interests of consumers, has passed a regulation that says the allowable exposure of a lender to all of its borrowers should not go over Rs 50 lakh ($70,000) at any time on a peer-to-peer (P2P) platform, according to a report by Business Insider.

“On a review, it has been decided that the aggregate exposure of a lender to all borrowers at any point of time, across all P2P platforms, shall be subject to a cap of [Rs 5,000,000] provided that such investments of the lenders on P2P platforms are consistent with their net-worth,” the RBI said.

Any lender that invests over Rs 10 lakh ($14,000) throughout P2P platforms will have to provide a certificate that shows a minimum net worth of Rs 50 lakh.

“Further, all the lenders shall submit declaration to P2P platforms that they have understood all the risks associated with lending transactions and that P2P platform does not assure return of principal/payment of interest,” the RBI said.

When it comes to transfer mechanism, the RBI said, “Escrow accounts to be operated by bank promoted trustee for transfer of funds need not be mandatorily maintained with the bank which has promoted the trustee.”

The guidelines state that P2P lending has to happen through an escrow account type operation, and that it has to be done by a bank promoted trustee.

There also have to be two escrow accounts, one for funds that are received from lenders and waiting for disbursal, and the other for collections from borrowers. Cash transactions are also prohibited, and everything has to go through bank accounts.

The RBI also recently provided guidelines for payment systems.

The bank set forth guidelines for “on tap” authorization for various payment systems, including the Bharat Bill Payment Operating Unit (BBPOU), Trade Receivables Discounting System (TReDS) and White Label ATMs (WLAs).

The guidelines include the minimum amount of net worth required, among other guidelines, in an attempt to foster innovation and competition.

“The payment system operators should ensure interoperability among different retail payment systems,” the bank said, adding that authorization would be given based on the proposal and on how the bank assessed the potential of its place in the financial segment.