Tag Archives: NBFC

guidelines on dividends payable by NBFCs

In order to infuse greater transparency and uniformity in practice, it has been decided to prescribe guidelines on distribution of dividend by NBFCs.

Applicability

2. These guidelines shall be applicable to all NBFCs regulated by RBI1 as below:

(a) Applicable NBFCs as defined in Paragraph 2(2) of Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016; and

(b) Applicable NBFCs as defined in Paragraph 2(2) of Non-Banking Financial Company – Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016.

Effective Date

3. These guidelines shall be effective for declaration of dividend from the profits of the financial year ending March 31, 2022 and onwards.

Board Oversight

4. The Board of Directors shall, while considering the proposals for dividend, take into account the following aspects:

(a) Supervisory findings of the Reserve Bank (National Housing Bank (NHB) for HFCs) on divergence in classification and provisioning for Non-Performing Assets (NPAs).

(b) Qualifications in the Auditors’ Report to the financial statements; and

(c) Long term growth plans of the NBFC.

The Board shall ensure that the total dividend proposed for the financial year does not exceed the ceilings specified in these guidelines.

Eligibility criteria

5. NBFCs shall comply with the following minimum prudential requirements to be eligible to declare dividend:

Table 1: Declaration of Dividend: Minimum Prudential Requirements
Sl. No.ParameterRequirement
1.Capital Adequacy(a) NBFCs (other than Standalone Primary Dealers) shall have met the applicable regulatory capital requirement (refer Annex I) for each of the last three2 financial years including the financial year for which the dividend is proposed.

(b) Standalone Primary Dealers (SPDs) should have maintained a minimum CRAR of 20 per cent for the financial year (all the four quarters) for which dividend is proposed.
2.Net NPAThe net NPA ratio shall be less than 6 per cent in each of the last three years, including as at the close of the financial year for which dividend is proposed to be declared.
3.Other criteria(a) NBFCs shall comply with the provisions of Section 45 IC of the Reserve Bank of India Act, 1934. HFCs shall comply with the provisions of Section 29 C of The National Housing Bank Act, 1987.

(b) NBFCs shall be compliant with the prevailing regulations/ guidelines issued by the Reserve Bank. The Reserve Bank or the NHB (for HFCs) shall not have placed any explicit restrictions on declaration of dividend.

Quantum of Dividend Payable

6. NBFCs eligible to declare dividend as per paragraph 5 above, may pay dividend, subject to the following:

(a) The Dividend Payout Ratio is the ratio between the amount of the dividend payable in a year and the net profit as per the audited financial statements for the financial year for which the dividend is proposed.

(b) Proposed dividend shall include both dividend on equity shares and compulsorily convertible preference shares eligible for inclusion in Tier 1 Capital.

(c) In case the net profit for the relevant period includes any exceptional and/or extra-ordinary profits/ income or the financial statements are qualified (including ’emphasis of matter’) by the statutory auditor that indicates an overstatement of net profit, the same shall be reduced from net profits while determining the Dividend Payout Ratio.

(d) The ceilings on dividend payout ratios for NBFCs eligible to declare dividend are as under:

Table 2: Ceilings on Dividend Payout Ratio
Sl. No.Type of NBFCMaximum Dividend Payout Ratio (percentage)
1.NBFCs that do not accept public funds and do not have any customer interfaceNo ceiling specified
2.Core Investment Company60
3.Standalone Primary Dealers60
4.Other NBFCs50

(e) The Reserve Bank shall not entertain any request for ad-hoc dispensation on declaration of dividend.

7. A NBFC (other than SPD) which does not meet the applicable prudential requirement prescribed in Paragraph 53 above for each of the last three financial years, may be eligible to declare dividend, subject to a cap of 10 percent on the dividend payout ratio, provided the NBFC complies with the following conditions :

(a) meets the applicable capital adequacy requirement in the financial year for which it proposes to pay dividend; and

(b) has net NPA of less than 4 per cent as at the close of the financial year.

8. As per extant regulations contained in paragraph 30 of Master Direction – Standalone Primary Dealers (Reserve Bank) Directions, 2016, in case of SPDs which have a CRAR at or above the regulatory minimum of 15 per cent during each of the quarters of the previous year, but lower than 20 per cent in any of those quarters, the dividend payout ratio shall not exceed 33.3 per cent.

Reporting System

9. NBFC-D, NBFC-ND-SI, HFC & CIC declaring dividend shall report details of dividend declared during the financial year as per the format prescribed in Annex 2. The report shall be furnished within a fortnight after declaration of dividend to the Regional Office of the Department of Supervision of the Reserve Bank/ Department of Supervision of NHB, under whose jurisdiction it is registered.

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housing finance companies

RBI circular dated 22nd October, 2020 reviewing the regulatory framework for housing finance companies in India. The revised regulatory framework is given below.

Changes in the regulatory framework for Housing Finance Companies (HFCs)

Principal business and housing finance

1. “Housing finance company” shall mean a company incorporated under the Companies Act, 2013 that fulfils the following conditions:

  1. It is an NBFC1 whose financial assets, in the business of providing finance for housing, constitute at least 60% of its total assets (netted off by intangible assets). Housing finance for this purpose shall mean providing finance as stated at clauses (a) to (k) of Para 2 below.
  2. Out of the total assets (netted off by intangible assets), not less than 50% should be by way of housing financing for individuals as stated at clauses (a) to (e) of Para 2 below.

2. “Housing Finance” shall mean financing, for purchase/ construction/ reconstruction/ renovation/ repairs of residential dwelling units, which includes:

  1. Loans to individuals or group of individuals including co-operative societies for construction/ purchase of new dwelling units.
  2. Loans to individuals or group of individuals for purchase of old dwelling units.
  3. Loans to individuals or group of individuals for purchasing old/ new dwelling units by mortgaging existing dwelling units.
  4. Loans to individuals for purchase of plots for construction of residential dwelling units provided a declaration is obtained from the borrower that he intends to construct a house on the plot within a period of three years from the date of availing of the loan.
  5. Loans to individuals or group of individuals for renovation/ reconstruction of existing dwelling units.
  6. Lending to public agencies including state housing boards for construction of residential dwelling units.
  7. Loans to corporates/ Government agencies for employee housing.
  8. Loans for construction of educational, health, social, cultural or other institutions/ centres, which are part of housing projects and which are necessary for the development of settlements or townships (see note below).
  9. Loans for construction meant for improving the conditions in slum areas, for which credit may be extended directly to the slum-dwellers on the guarantee of the Central Government, or indirectly to them through the State Governments.
  10. Loans given for slum improvement schemes to be implemented by Slum Clearance Boards and other public agencies.
  11. Lending to builders for construction of residential dwelling units.

2.1 All other loans including those given for furnishing dwelling units, loans given against mortgage of property for any purpose other than buying/ construction of a new dwelling unit/s or renovation of the existing dwelling unit/s as mentioned above, will be treated as non-housing loans and will not be falling under the definition of “Housing Finance”.

Note: Integrated housing project comprising some commercial spaces (e.g. shopping complex, school, etc.) can be treated as residential housing, provided that the commercial area in the residential housing project does not exceed 10 per cent of the total Floor Space Index (FSI) of the project.

3. The above criteria will be applicable from the date of this circular. Registered HFCs which do not currently fulfil the criteria as specified in Para 1, but wish to continue as HFCs, shall be provided with the following timeline for transition:

TimelineMinimum percentage of total assets towards housing financeMinimum percentage of total assets towards housing finance for individuals
March 31, 202250%40%
March 31, 202355%45%
March 31, 202460%50%

Such HFCs shall be required to submit to the Reserve Bank, a Board approved plan within three months including a roadmap to fulfil the above-mentioned criteria and timeline for transition. HFCs unable to fulfil the above criteria as per the timeline shall be treated as NBFC – Investment and Credit Companies (NBFC-ICC) and they will be required to approach the Reserve Bank for conversion of their Certificate of Registration from HFC to NBFC-ICC. Application for such conversion should be submitted with all supporting documents meant for new registration together with an auditor’s certificate on principal business criteria and necessary Board resolution approving the conversion.

Net Owned Fund (NOF) Requirement

4. In exercise of the powers conferred by clause (b) of sub-section (1) of Section 29A of the National Housing Bank Act, 1987, and all powers enabling it in that behalf, the Reserve Bank hereby specifies Rupees twenty crore as the minimum net owned funds required for a company to commence housing finance as its principal business or carry on the business of housing finance as its principal business.

Provided that a housing finance company holding a Certificate of Registration (CoR) and having net owned fund of less than Rupees twenty crore, may continue to carry on the business of housing finance, if such company achieves net owned fund of Rupees fifteen crore by March 31, 2022 and Rupees twenty crore by March 31 2023.

5. It will be incumbent upon such HFCs whose NOF currently stands below Rupees twenty crore, to submit a statutory auditor’s certificate to Reserve Bank within a period of one month evidencing compliance with the prescribed levels as at the end of the period indicated above. HFCs failing to achieve the prescribed level within the stipulated period shall not be eligible to hold the Certificate of Registration (CoR) as HFCs and registration for such HFCs shall be liable to be cancelled. Such companies, who wish to be treated as NBFC – Investment and Credit Companies (NBFC-ICCs), will be required to approach RBI for conversion of their CoR from HFC to NBFC-ICC. Application for such conversion should be submitted with all supporting documents meant for new registration together with an auditor’s certificate on principal business criteria (PBC) and necessary Board resolution approving the conversion.

Applicability of directions issued by Reserve Bank

6. The following master directions, as amended from time to time, shall apply mutatis mutandis to all HFCs:

  1. Master Direction – Monitoring of Frauds in NBFCs (Reserve Bank) Directions, 2016.
  2. Master Direction – Information Technology Framework for the NBFC Sector dated June 08, 2017.

7. The following instructions, as further detailed in the Appendix shall apply mutatis mutandis to all HFCs:

a. Definition of public deposits as contained in Master Direction – Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016. Additionally, any amount received from NHB or any public housing agency shall also be exempted from the definition of public deposit.

b. Implementation of Indian Accounting Standards: HFCs shall maintain a prudential floor in respect of impairment allowances and follow instructions on regulatory capital.

c. Loans against security of shares: HFCs lending against the collateral of listed shares shall maintain a Loan to Value (LTV) ratio of 50% for loans granted against the collateral of shares. Any shortfall in the maintenance of the 50% LTV occurring on account of movement in the share prices shall be made good within seven working days.

d. Loans against security of single product – gold jewellery: HFCs shall maintain a Loan-to-Value (LTV) Ratio not exceeding 75 per cent for loans granted against the collateral of gold jewellery, and shall put in place a Board approved policy for lending against gold.

e. Levy of foreclosure charges: HFCs shall not impose foreclosure charges/ pre-payment penalties on any floating rate term loan sanctioned for purposes other than business to individual borrowers, with or without co-obligant(s).

f. Guidelines on Securitization Transactions and reset of Credit Enhancement: HFCs shall carry out securitization of standard assets and transfer of assets through direct assignment of cash flows and the underlying securities. In doing so, HFCs, among other things, shall conform to the minimum holding period (MHP) and minimum retention requirement (MRR) standards.

g. Managing Risks and Code of Conduct in Outsourcing of Financial Services: It is imperative for HFCs outsourcing their activities that they ensure sound and responsive risk management practices for effective oversight, due diligence and management of risks arising from such outsourced activities.

h. Guidelines on Liquidity Risk Management Framework: All non-deposit taking HFCs with asset size of ₹100 crore and above and all deposit taking HFCs (irrespective of asset size) shall pursue liquidity risk management, which inter alia should cover adherence to gap limits, making use of liquidity risk monitoring tools and adoption of stock approach to liquidity risk. It will be the responsibility of the Board of each HFC to ensure that the guidelines are adhered to. The internal controls required to be put in place by HFCs as per these guidelines shall be subject to supervisory review.

i. Guidelines on Liquidity Coverage Ratio (LCR): HFCs shall maintain a liquidity buffer in terms of LCR, which will promote resilience of HFCs to potential liquidity disruptions by ensuring that they have sufficient High Quality Liquid Asset (HQLA) to survive any acute liquidity stress scenario lasting for 30 days. Guidelines on LCR will be applicable to HFCs as per the following timeline:

i) All non-deposit taking HFCs with asset size of ₹10,000 crore & above, and all deposit taking HFCs irrespective of their asset size:

FromDecember 01, 2021December 01, 2022December 01, 2023December 01, 2024December 01, 2025
Minimum LCR50%60%70%85%100%

ii) All non-deposit taking HFCs with asset size of ₹5,000 crore & above, but less than ₹10,000 crore with the timeline as:

FromDecember 01, 2021December 01, 2022December 01, 2023December 01, 2024December 01, 2025
Minimum LCR30%50%60%85%100%

8. Exposure of HFCs to group companies engaged in real estate business: In case of companies in a group engaged in real estate business, HFCs may undertake exposure either to the group company engaged in real estate business or lend to retail individual home buyers in the projects of such group companies. In case HFC prefers to undertake exposure in group companies, such exposure by way of lending and investing, directly or indirectly, cannot be more than 15% of owned fund for a single entity in the group and 25% of owned fund for all such group entities. The HFC would in all such cases follow arm’s length principles in letter and spirit.

Appendix

Para no. of this circularParticularsReference to regulations issued by Reserve Bank
7 (a)Definition of public depositsPara 3 (xiii) Master Direction – Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016.
7 (b)Implementation of Indian Accounting StandardsDOR (NBFC).CC.PD.No.109/22.10.106 /2019-20 dated March 13, 2020 and DOR (NBFC).CC.PD.No.116 /22.10.106/2020-21 July 24, 2020.
7 (c)Loans against security of sharesPara 22 of Master Direction – Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.
7 (d)Loans against security of single product–gold jewelleryPara 27 and Para 39 of Master Direction – Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.
7 (e)Levy of foreclosure chargesPara 31 (4) of Master Direction – Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.
7 (f)Guidelines on Securitisation TransactionsPara 105 and 106 of Master Direction – Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.
7 (g)Managing Risks and Code of Conduct in Outsourcing of Financial ServicesPara 120 of Master Direction – Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.
7 (h)Guidelines on Liquidity Risk Management FrameworkPara 15A of Master Direction – Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.
7 (i)Guidelines on Liquidity Coverage RatioPara 15B of Master Direction – Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.

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Nidhi companies

PIB press release dated 12th March, 2020

In order to make regulatory regime for Nidhi Companies more effective and also to accomplish the objectives of transparency & investor friendliness in corporate environment of the country, the Central Government has recently amended the provisions related to NIDHI under the Companies Act and the Rules (effective from 15.08.2019).

The amended provisions of the Companies Act (Section 406) and Nidhi rules (as amended w.e.f. 15.08.2019) require that the Nidhi companies have to apply to the Central government for updation of their status/ declaration as Nidhi Company in Form NDH-4.

The time-frame for applying to Central Government in form NDH-4 is as under:-

  1. Companies incorporated as Nidhi before Nidhi Amendment Rules, 2019 i.e. 15.08.2019 have to apply within a period of one year from the date of its incorporation or within 9 months of the Nidhi Amendment Rules i.e. 15.08.2019 whichever is later.

 

  1. Companies incorporated as Nidhi on or after Nidhi Amendment Rules, 2019 i.e. 15.08.2019 have to apply within 60 days of expiry of one year from the date of incorporation or extended  period (as granted by concerned Regional Director).

In case a company does not comply with the above requirements, it shall not be allowed to file Form No. SH–7 (Notice to Registrar for any alteration of share capital) and Form PAS–3 (Return of Allotment).

Such companies are required to ensure strict adherence to provision of Companies Act, 1956/2013 and Nidhi Rules, 2014 as amended. In case of contravention  of the provisions of these Rules, the company and every officer of the company who is in default shall initially be punishable with fine which may extend to five thousand rupees and further fine in case of continuous violations.

Further, the Investors are advised to verify the status of Nidhi company from the notification issued by Central Government in official gazette before making any investment or deposit.

Under Nidhi Rules, 2014, Nidhi is a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and saving amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit.

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nidhi company

MCA notification dated 14th February, 2020

  1. Rule 23A of Nidhi Rules, 2014, Every company referred to in clause (b) of rule 2 and every Nidhi incorporated under the Act, before the commencement of Nidhi (Amendment)Rules, 2019, shall also get itself declared as such in accordance with rule 3A within a period of one year from the date of its incorporation or within a period of six months Nine months from the date of commencement of Nidhi (Amendment) Rules, 2019, whichever is later provided that in case a company does not comply with the requirements of this rule, it shall not be allowed to file Form No. SH-7 (Notice to Registrar of any alteration of share capital) and Form PAS-3 (Return of Allotment).

 

  1. Rule 3A, of NIdhi Rules, 2014, Dectaration of Nidhis :- In the Form NDH-4 within Sixty days from the date of expiry of :-
  • One year from the date of its incorporation; or
  • the period up to which extension of time has been granted by the Regional Director.
  1. Clause (b) of Rule 2 of Nidhi Rules, 2014, every company functioning on the lines of a Nidhi company or Mutual Benefit Society but has either not applied for or has applied for and is awaiting notification to be a Nidhi or Mutual Benefit Society under sub-Section (1) of Section 620A of the Companies Act, 1956.
  2. What is a Nidhi company? : A nidhi company is a type of company in the Indian non-banking finance sector, recognized under section 406 of the Companies Act, 2013. Their core business is borrowing and lending money between their members. They are also known as Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit Company. (source wikipedia)

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NBFC- P2P Master Directions 2017

RBI/DNBR/2017-18/57
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.

1. 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.

2. 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.

3. Scope

These Directions provide a framework for the registration and operation of NBFC-P2Ps in India.

4. Definitions

(1) In these Directions, unless the context otherwise requires, the terms used herein shall bear the meanings assigned to them below —

  1. “Company” means a company as defined in clause (20) of section 2 of the Companies Act, 2013;
  2. “Leverage Ratio” means the Total Outside Liabilities divided by Owned Funds, of the NBFC-P2P.
  3. “Non-performing asset” (NPA) means a loan where interest and/ or installment of principal remain overdue for a period of 90 days or more.
  4. “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;
  5. ”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;
  6. “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.

5. Registration

(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:

  1. The company is incorporated in India;
  2. The company has the necessary technological, entrepreneurial and managerial resources to offer such services to the participants;
  3. The company has the adequate capital structure to undertake the business of Peer to Peer Lending Platform;
  4. The promoters and the Directors of the company are fit and proper;
  5. The general character of the management of the company is not prejudicial to the public interest;
  6. The company has submitted a plan for, or implemented, a robust and secure Information Technology system;
  7. The company has submitted a viable business plan for conducting the business of Peer to Peer Lending Platform;
  8. Public interest shall be served by the grant of CoR;
  9. 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 –

  1. ceases to carry on the business of Peer to Peer Lending Platform in India; or
  2. has failed to comply with any condition subject to which the CoR has been issued to it; or
  3. is no longer eligible to hold the CoR; or
  4. at any time fails to fulfill any of the conditions referred to in paragraphs 5(2)(ii) and 5(2)(v); or
  5. 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.

6. Scope of Activities

(1) An NBFC-P2P shall-

  1. act as an intermediary providing an online marketplace or platform to the participants involved in Peer to Peer lending;
  2. not raise deposits as defined by or under Section 45I(bb) of the Act or the Companies Act, 2013;
  3. not lend on its own;
  4. not provide or arrange any credit enhancement or credit guarantee;
  5. not facilitate or permit any secured lending linked to its platform; i.e. only clean loans will be permitted;
  6. 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;
  7. not cross sell any product except for loan specific insurance products;
  8. not permit international flow of funds;
  9. ensure adherence to legal requirements applicable to the participants as prescribed under relevant laws.
  10. store and process all data relating to its activities and participants on hardware located within India.

(2) Further, NBFC-P2P shall-

  1. undertake due diligence on the participants;
  2. undertake credit assessment and risk profiling of the borrowers and disclose the same to their prospective lenders;
  3. require prior and explicit consent of the participant to access its credit information;
  4. undertake documentation of loan agreements and other related documents;
  5. provide assistance in disbursement and repayments of loan amount;
  6. 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.

7. 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.

8. Operational Guidelines

(1) NBFC-P2P shall have a Board approved policy in place –

  1. Setting out the eligibility criteria for participants on it.
  2. Determining the pricing of services provided by it.
  3. 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.

9. 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.

10. 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;

11. Transparency and Disclosure Requirements

(1) An NBFC-P2P shall be required to disclose the following:

(i) to the lender

  1. details about the borrower/s including personal identity, required amount, interest rate sought and credit score as arrived by the NBFC-P2P.
  2. 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:

  1. overview of credit assessment/score methodology and factors considered;
  2. disclosures on usage/protection of data;
  3. grievance redressal mechanism;
  4. portfolio performance including share of non-performing assets on a monthly basis and segregation by age; and
  5. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. 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

  1. “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.
  2. “relative” has the same meaning as assigned under section 2(77) of the Companies Act, 2013.
  3. “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.

17. 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;

  1. disbursed during the quarter;
  2. closed during the quarter; and
  3. 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

  1. lenders and
  2. borrowers.

(iv) The Leverage Ratio, with details of its numerator and denominator.

18. Supervision

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.

19. Exemptions

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.

20. Clarifications

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.

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