P2P firms seek RBI relaxation on lending limit

A little more than a year after the Reserve Bank of India (RBI) came out with guidelines for peer-to-peer (P2P) lending companies to convert into non-banking finance companies (NBFCs), micro and small enterprises (SME) lending has turned out to be the focus area for these companies.

However, the current regulation does not allow a single lender to lend more than Rs 10 lakh across P2P platforms at a time. This is hampering growth prospects, say P2P players. The association of P2P lenders has sought relaxation in the norm, and requested the RBI to raise the limit to Rs one crore, according to sources in the industry.

At present, borrowing  from the P2P platform by a single entity is also limited to Rs 10 lakh. Most micro and small enterprises have loan requirement between Rs 5-25 lakh.

“SME lending is an area which we are looking to grow. However, the limit of Rs 10 lakh is a dampener. The present regulations are suitable for the initial phases of growth in the sector. However, if the industry wants to grow, the limit needs to be relooked,” according to Abhishek Gandhi, co-founder, RupeeCircle.

In order  to meet business loan requirements of single borrower, often a clutch of lenders come together to provide the lending. For example, if an SME is in need of Rs five lakh, ten players may form a group to lend Rs 50,000 each.  

After RBI came out with regulations governing P2P lending last years, their business has also seen a substantial increase in volume.

“In three to four years before getting the NBFC licence, our monthly loan portfolio growth was between Rs 70 and 80 lakh. This has increased to Rs 3 crore per month after we got the licence. Also, we are now attracting more credit worthy borrowers than before. We are giving a lot of business loans. The ceiling of Rs 10 lakh is hampering the growth prospects,” Raghavendra Singh, co-founder i2i Funding.

Some other areas where P2P lenders have sought a tweak is regarding the requirement of a trust run by the bank for collection and disbursement of the loan.

“At least two escrow accounts, one for funds received from lenders and pending disbursal, and the other for collections from borrowers, shall be maintained. The trustee shall mandatorily be promoted by the bank maintaining the escrow accounts," the RBI notification said.

Not many banks have these trusts. P2P companies have sought a relaxation to allow NBFCs to maintain the trust on behalf of banks.