Leading Back Office Systems for Banks

In-depth Supplier Profiles and User Lists. Subscribe now

In-depth Banking Tech and FinTech Research

Over 300 research reports that's updated quarterly. Subscribe now

RPA in Banking: Strategies and Pitfalls

Insights on RPA Suppliers and Case Studies. Subscribe now

India’s RBI extension of loan limit to expand P2P market by manifolds

In a move that could boost the online P2P (Peer-to-peer) lending segment in the country and also encourage an alternate mode of investments, the Reserve Bank of India (RBI) increased the lending cap for each individual lender from the INR 10 Lakh to INR 50 Lakh.

Online P2P lending enables individuals to obtain loans directly from other individuals in the absence of any financial institution as the middleman and has been growing in several developed economies an alternative method of financing. It is also known as social lending or crowdlending. It is a risky business as unsecured loans are involved with the lender taking on the risk of default by the borrower.

Making this announcement at the bi-monthly Monetary Policy Statement on Thursday, the banking regulator said that the functioning of the lending platforms and lending limit was carried out and in order to give the necessary push to lending platforms, the aggregate exposure of a lender to all borrowers any point of time, across all P2P platforms, shall be subject to a cap of INR 50 Lakh.

“This will help provide more flexibility in operations. Necessary instructions in this regard will be issued shortly,” the banking regulator added.

This was a long pending demand by the Digital Lending Association of India (DLAI), which has P2P lenders such as LenDenClub, RupeeCircle and Faircent amongst several others in the country and the announcement has been hailed by the segment as it would help P2P players attract more funds to lend.

“We welcome this move by RBI as P2P enters into a new era from today. Now, P2P lending stands equal against other investment options like MF, FD, Bonds, PMS etc. New investment limit will attract HNIs to explore P2P lending as a new investment option. Even a small exposure to P2P investment will improve their portfolio-level returns,” said Bhavin Patel, co-founder and CEO, LenDenClub.

“…This move is a big positive for all P2P companies and investors and shows the RBI’s trust and confidence in P2P lending to resolve the problem for existing credit gap in the market,” said Abhishek Gandhi, co-founder and CFO, RupeeCircle.

The move by the RBI comes at a time when the economy is entering a slowdown and there is a massive credit crunch in the market. Experts believe that the move can boost consumption and also solve the liquidity crunch as more and more HNIs would be keen on participating in P2P platforms for better returns. At a time when banks are giving not more than 5 per cent interest on the savings account, lenders on P2P platforms can earn anything upwards of 20 per cent on the unsecured loans.

In 2017, the RBI had come out with guidelines for the P2P lending platforms stating that the segment needs to be regulated and treated on par with non-banking financial companies (NBFCs). The guideline has helped expand the market, which is still at a nascent stage, with the size of ranging from INR 3 billion to INR 4 billion.

“As the next step, institutional lenders need to be further incentivized by removing the limit for them to further the flow of alternative credit into the economy through NBFC-P2P platforms. Thanks to RBI, P2P lending sector will celebrate Christmas early this year,” Rajat Gandhi, founder and CEO, Faircent, said in a statement.

While the Indian government is bringing out policies and regulations to formalise P2P lending in India, its neighbouring country China shuns the segment due to frauds, scandals and high risks associated with the sector. However, the reason for the Chinese P2P debacle is lax regulations that have put the once-booming sector out of action now.

Related Posts