The Reserve Bank of India is soon likely to issue clarifications on the guidelines for peer-to-peer (P2P) lending platforms relating to the lending limits, trusteeship and other operational norms.
In October, the central bank had issued final guidelines to regulate the digital lending platforms as non-banking financial companies (NBFCs) and while the industry seems to be happy at being regulated to get more acceptance, there are certain doubts on the limit of the lenders on such platforms, the trusteeship and disclosure of personal identity of the participants.
Bhavin Patel, Founder & CEO, LenDenClub, said, "We required clarifications on a couple of points and they have given a satisfactory explanation. One was with respect to the Trust. They had said that the Trust has to be maintained by the bank. But now they will come out with clarifications or FAQs (frequently asked questions) to clear doubts."
On fund transfer, the RBI has said that the trustee shall mandatorily be promoted by the banks maintaining the escrow accounts.
However, Patel said, as of now, there are only two banks providing such trusteeship – Axis Bank and IDBI Bank. "But some of the entities like us have a non-bank trustee but which are SEBI registered and it can meet the rule that a registered party (like a trustee whether bank trustee or SEBI registered) must be in between the banks and the platform.”
RBI, in its guidelines, has said that, “All fund transfers shall be through and from bank accounts and cash transaction is strictly prohibited.”
P2P lending is a form of crowd-funding used to raise loans which are paid back with interest. It can be defined as the use of an online platform that matches lenders with borrowers in order to provide unsecured loans. The borrower can either be an individual or a legal person requiring a loan.
The central bank has capped the aggregate limit of exposure of a lender to all borrowers and loans taken by a borrower at any point of time, across all P2Ps, at Rs 10 lakh.
“As the industry has not reached at a larger level, the bar of Rs 10 lakh limit by lenders could have been raised for bigger investments from lenders to be a part of such a platform. The regulator has said they may look at it at a later stage,” said Senthil Natrajan, CEO of Chennai-based OpenTap, a P2P lender in the alternative lending space.
Raghavendra Pratap Singh, Co-founder, i2ifunding said, “Whether the restriction is applicable on existing investors or not, is not certain. The RBI said they would clarify soon as there are many NBFCs lending on such platforms, which may need changes to adhere to these rules. The same (Rs 10 lakh limit) will restrict the growth of this sector as there are many HNIs who have invested more than 10 lakh on our platform alone. We hope that the RBI will provide some relaxation on this in future.”
The players have also raised doubts on the disclosure of information. But there was a doubt that information sharing could lead to disclosure of personal identity of the borrower, which can be risky for them. But the RBI has clarified that there would be basic information that would be required but limited information, other than the personal identity, could be shared.
Singh highlighted that clarification on how execution of agreements will take place if lender’s personal identity is not to be revealed to borrower and how RBI will monitor the norms and how platforms would report it.
Rajat Gandhi, Founder and CEO of Faircent, one of the largest P2P lenders said that although their business is more focused on retail lenders with average money lent at Rs 3-4 lakh, much below the prescribed limit; RBI might give some time to those lenders who have crossed the Rs 10 lakh limit.
Further, the RBI may look at giving some clarification on the operational front; they may clear the doubt on the Trusteeship.
“We didn’t have too many apprehensions and we are in the process of applying for the license. We were prepared for some of those restrictions given in the guidelines,” Gandhi added.
The entities are hopeful that the regulations open up a new asset class for the investors and the sector is set to grow further. Additionally, the cost of borrowing may come down in the long term for the under-served sections of the society leading to greater financial inclusion.