What is the NBFC-P2P T+1 Rule?

The NBFC-P2P T+1 Rule brings a significant change in how peer to peer lending platforms handle money transfers. This rule came into effect on November 15, 2024, following updated RBI guidelines issued on August 16, 2024.

The T+1 rule works just like stock market settlements. The “T” stands for the transaction date, and “+1” means one working day after that date. So when money moves on a P2P platform, it must be settled within one business day of the transaction.

How the NBFC-P2P T+1 Rule Works in Practice?

When you put money into a P2P lending platform, that money sits in an escrow account. Think of this as a safe holding space managed by a bank-appointed trustee. The T+1 rule says this money can’t just sit there forever.

For lenders, here’s what happens: You transfer money to fund loans, but you must select and approve which borrowers get your money within one working day. If you don’t make this choice quickly enough, your money gets sent back to your personal bank account.

For borrowers making repayments, the rule works the other way. When borrowers pay their monthly EMIs, that money must reach lenders’ bank accounts within one working day of hitting the platform’s escrow account.

Why the RBI Introduced This Rule?

The RBI didn’t create this rule out of thin air. They discovered that some P2P platforms were keeping lenders’ money for too long without proper justification. 

Some platforms were also mixing funds between different escrow accounts, which wasn’t allowed.

The regulator wanted to stop platforms from acting like banks. P2P platforms should only be middlemen connecting lenders and borrowers, not institutions that hold onto money for extended periods.

How does it Impact Lenders and Their P2P Account?

This rule changes how lenders manage their P2P investments in several important ways.

First, lenders need to be more active. You can’t just dump money into your P2P account and forget about it. You must actively select borrowers within one working day.

Second, your money flows differently now. When borrowers repay loans, you’ll see smaller amounts trickling into your bank account throughout the month instead of everything building up in your P2P platform account. This happens because different borrowers make EMI payments on different dates.

Third, maintaining your investment level requires more work. Since principal repayments go straight to your bank account, your active P2P account balance drops over time unless you reinvest that money or add fresh funds.

Challenges for P2P Platforms

The NBFC-P2P T+1 rule creates significant operational headaches for P2P platforms. Industry experts point out that processing thousands of daily transactions within one working day puts enormous pressure on trustees and escrow banks.

Some platforms temporarily paused new investments and withdrawals when the rule first took effect because their systems weren’t ready. 

The technical infrastructure needed to handle such rapid fund movements required major upgrades.

Despite all these hurdles, LenDenClub is adapting and delivering best p2p lending services to customers following all these new rules.

The Escrow Account System

Understanding escrow accounts helps explain why the T+1 rule matters so much. P2P platforms must use two separate escrow accounts: one for lender funds and another for borrower repayments.

Money can only flow in specific directions. Lender funds go from personal bank accounts to the lenders’ escrow account, then to borrowers’ bank accounts. 

Repayments flow from borrowers’ bank accounts to the borrowers’ escrow account, then to lenders’ bank accounts.

The T+1 rule ensures money doesn’t get stuck in these escrow accounts. This protects both lenders and borrowers by preventing platforms from using customer funds for their own purposes.

What is the Long-term Effect of P2P T+1 Rule on the P2P Industry?

This rule represents part of the RBI’s broader effort to withstand with lenders commitment to P2P lending industry. Other recent changes include banning guaranteed returns, stopping secondary market trading, and requiring stricter disclosure requirements.

Some industry players worry these rules might slow down the sector’s growth. The P2P lending market in India was projected to reach $10 billion by 2026, but stricter regulations might affect that timeline.

However, the changes should improve transparency and build more trust in P2P lending platforms. Lenders get better protection, and the industry becomes more professional and regulated.

The T+1 rule forces platforms to focus on their core job: connecting lenders and borrowers efficiently rather than trying to become quasi-banks. This clarity benefits everyone involved in P2P lending.

For anyone considering P2P lending, understanding the T+1 rule helps set proper expectations about how quickly money moves and how actively you need to manage it in this new regulatory environment.