P2P lending companies' guidelines will aid quicker funding, assist smaller players

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The Reserve Bank of India (RBI) has issued directions for non-banking financial companies (NBFCs) which operate as peer-to-peer (P2P) lending platforms. Effective immediately since Wednesday evening, now an NBFC-P2P company would have to register with the RBI before it can start or carry out the business of such lending.

NBFC-P2P companies are online platforms that bring together lenders and borrowers, and unsecured loans are offered at a rate of interest.

These companies will also need to have a net owned fund of not less than ₹20 million or higher as the RBI may specify.

The central bank has laid down some clear guidelines which these companies will have to adopt. The aggregate exposure of a lender to all his/ her borrowers at any point of time, across all P2Ps, should now be capped at ₹10 lakh. The aggregate loans taken by a borrower at any point of time, across all P2Ps, should also be capped at the same amount.

The exposure of a single lender to the same borrower, across all P2Ps, shall not exceed ₹50,000. The maturity of the loans shall not exceed 36 months.

According to experts Forbes India spoke to, the apex bank's latest move will help formalise the operations of these companies better. It is also expected to ensure better flow of funding towards those who need it most and particularly benefit smaller players.

Some of the known P2P lending companies include companies such as Faircent, Lendbox and i2iFunding.

Ratings agency Crisil’s senior director Krishnan Sitaraman says, ”This latest move will provide some formal financial ambit to the current practice. It will also ensure greater flow of funding to certain borrowers who previously struggled to get access to such funding.”

Dev Raj Singh, executive director, tax and regulatory services, EY India, said, “In addition to the benefit for the borrowers by giving easy access to credit, it will also benefit the small lenders by giving them avenue to lend the surplus funds in a secured manner which will yield higher rate of return as compared to bank deposits.”

The guidelines also permit the existing players to apply to the RBI within three months for the registration. But Dev Raj Singh said that the cap on the amount of borrowers/ lenders, in single or in aggregate, would keep the high net-worth individuals away from participating.