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RBI issues clarifications on NBFC – P2P Lending Platform Direction, 2017.

By January 10, 2018 No Comments

The Reserve Bank of India (“RBI”) issued FAQ’s on January 3, 2018 to the Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017 (“Master Directions”).

The Master Direction mandated that “intermediaries providing the services of loan facilitation via online medium or otherwise”, are required to obtain an NBFC P2P license from the RBI for carrying on the business of P2P Lending within the time frame referenced in the Master Directions. The Master Directions required such ‘NBFC-P2P’ entities to adhere to certain prudential norms including imposing monetary caps on aggregate exposure of a lender to all borrowers at any point in time and the exposure of a single lender to a borrower across all P2P platforms.

Pursuant to discussions with market participants, the difficultly for platforms connecting only regulated entities such as banks and financial institutions with borrowers to comply with these additional prudential norms and compliances were highlighted. The RBI has through the FAQ’s has now clarified that “Electronic Platforms that assist only banks, NBFCs and other regulated AIFIs to identify borrowers are not to be treated as P2P platforms. However, in cases where, apart from banks or NBFCs or AIFIs, other retail lenders use the platform for lending, the platform will have to register separately as an NBFC-P2P”

The RBI also clarified on the issue of whether an existing NBFC can operate as an NBFC-P2P and the RBI has disallowed them from doing so.

The FAQ’s are a welcome clarification from the RBI as platforms which assist regulated financial institutions are not considered as an ‘NBFC- P2P’ and therefore not governed by the provisions of the Master Directions. In our view these clarifications are consistent with the premise in the consultation paper released by the RBI prior to the Master Directions where the objective is to govern unregulated retail lenders or crown funding platforms.
IBBI effects amendment to ensure confidentiality of liquidation value and better price discovery of stressed assets.

In a fourth amendment dated 31st December 2017, the Insolvency and Bankruptcy Board of India (“IBBI”) amended the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“Regulations”). The amendments provide literature on the following issues:

A) Pre-Amendment: A ‘dissenting financial creditor’ implied only a member of the Committee of Creditors (“COC”) who voted against the resolution plan.
Post-Amendment: Section 2(1)(f) of the Regulations now includes within the meaning of a ‘dissenting financial creditor’, a creditor who has abstained from voting on a resolution.plan apart from one who has voted against it.
Impact: This amendment is a step towards expediting the resolution process as it prevents creditors who do not participate in the process from blocking the timely approvals of the plan.

B) Pre-Amendment: The resolution professional was required to disclose the liquidation value in the information memorandum circulated to the members of the COC and prospective bidders of the stressed asset.
Post-Amendment: The Regulations have been amended to exclude the requirement of including the liquidation value of the stressed asset in the information memorandum.
Impact: By way of this significant change, the IBBI has sought to weed out the anomaly whereby prospective bidders, already cognizant of the liquidation value, were basing their bids on such a guiding price and precluding the stressed asset from realizing its maximized value. The objective is prevent banks from taking haircuts, as absence of benchmarks will likely force bidders to make their own assessment while submitting a resolution plan. Furthermore, the resolution professional is now mandated to provide members of the COC with the liquidation value of the asset only after having obtained an undertaking from each of the members, as to the confidentiality of the information. This is in addition to the resolution professional, itself maintaining confidentiality to avoid loss or damage of any kind.

|| The Amendment is a part of the Government’s continuing and concerted efforts to make the IBC a viable and seamless mechanism to resolve the mounting bad loans in the economy by ensuring optimal price discovery for assets and reduction of haircuts for lenders ||