RBI's decision in the P2P lending space expected to attract new capital in the sector

The Reserve Bank of India's announcement to increase the limit for peer-to-peer (P2P) lenders to Rs 50 lakh is expected to bring in a lot of new capital in the financial technology space, players in the field feel.

Experts believe that a lot of venture capital (VC) firms would be abuzz with activity in this space in the next two to three quarters.

"So a lot of VCs who were watching this space very closely for the last 24 months that the regulations have come, will now start taking serious interest in the platforms which have been doing well," says Amit More, founder and CEO of Finzy, a P2P lending solution in India.

On December 5, the RBI in its monetary policy meeting, relaxed the lending cap for individual P2P lenders from the current Rs 10 lakh to Rs 50 lakh.

A customer can borrow money for short-term requirements as well as invest to earn at a higher rate of returns on these platforms. However, a lender cannot give more than Rs 50,000 to the same borrower across all P2P platforms, at any point in time.

More said that lenders who understand the importance of this alternate asset class in their investment portfolio were being constrained by the Rs 10 lakh limit.

"With this increase to Rs 50 lakh, they would get an opportunity to re-balance and increase their exposure to the P2P loans and benefit from the rich returns with diversified risk," More added.

A lot of wealth managers and financial advisers were worried about the extent to which they can recommend P2P as an asset class because of the limitation on exposure.

"With Rs 50 lakh per investor, they would also now be interested in actively recommending P2P platforms who have demonstrated low NPA rates on a consistent basis," More said.

The decision will also help these companies in scaling up their businesses by tapping into their existing investors who were constrained by the cap.

"(It will) bring in the high net worth clients who would love to diversify into a new powerful asset class that gives them access to retail loans with good returns with risks optimised," Abhinandan Sangam, co-founder and chief technical officer of Finzy, said.

P2P lending platforms connect borrowers with individual lenders. Such borrowings from P2P platforms are unsecured loans and interest rates for borrowers are higher as compared to charges levied by banks or non-banking financial companies (NBFCs).

In the P2P industry, individual borrowers are connected to lenders through digital platforms, and the platform just plays the role of a marketplace. More than 15 companies have registered with the RBI as NBFC P2P lending platforms.