P2P platforms look for biz model restructuring to comply with RBI norms

Rs 10 lakh cap on lending is restrictive, say players

With the Reserve Bank of India spelling out guidelines for regulating peer-to-peer (P2P) lending, many of these lenders are looking at ways to comply with the norms by restructuring their business models. Further, companies find Rs 10 lakh cap on lending restrictive, given the phenomenal growth of the sector in the past couple of years.  

“The aggregate exposure of a lender to all borrowers at any point of time, across all P2Ps, shall be subject to a cap of Rs 10 lakh and the aggregate loans taken by a borrower at any point of time, across all the platform, shall be subject to a cap of Rs 10 lakh and the exposure of a single lender to the same borrower, shall not exceed Rs 50,000,” said the RBI Thursday. 

Over the past few years, several variants of online marketplace for loans have emerged in India, and in several cases institutional finance is also being channelled through the platform. Several e-commerce websites too have been facilitating loans in tie-up with P2P platforms. 

“I don’t see that pure P2P lenders need to tweak their business model, but those who have been of late experimenting with new models might need restructuring. The cap of Rs 10 lakh on lender is very restrictive, as we have many lenders who have higher exposure at any given point in time. In fact, their portfolio keeps growing as they keep lending,” said Rajat Gandhi, founder and chief executive officer of Faircent. The company has been growing at about 15-20 per cent every month, with an average monthly lending of close to Rs 3 crore. 

“The new guidelines makes it difficult for high net-worth individuals (HNIs) to participate in the platform,” said Rangan Varadan, founder of MicroGraam. 

Notably, Varadan has co-founded two online lending marketplaces —MicroGraam and Billionloans. While MicroGraam is purely a P2P platform with participants being retail investors, Billionloans involves institutions and banks. Lenders in Billionloans include banks such as   YES Bank, ICICI Bank, IndusInd Bank and RBL Bank, apart from a number of NBFCs. 

Recently, Reliance Capital invested close to $1 million in Billionloans. The company is eying a lending of close to Rs 500 crore by the end of March 2018, said Varadan. 

Varadan is now planning to register Billionloans as an NBFC, while MicroGraam as P2P NBFC. By registering as NBFC, Billionloans would be able to continue providing institutional and direct lending. 

According to the RBI guidelines, for P2P NBFCs, the lending should be restricted to individuals. 

Further, the guidelines mandate a leverage ratio of not exceeding two case of P2P NBFCs. Thus, with capital of Rs 2 crore, a platform can facilitate loans only up to Rs 4 crore. 

“The guidelines does not treat P2P lending as priority sector lending. A lot of money in P2P platforms come through donations and (corporate social responsibility) CSR funds. Now, there would be difficulties in lending that money. We will have to see how to restructure our platform so that there will be no violation of law,”’ said says Ramakrishna NK, co-founder, Rang De. 

P2P lending is a form of crowd-funding, used to raise loans, which are paid back with interest. Interest rates on P2P platforms are linked to the risk profile of the borrower.

In a typical rural-centric P2P model, a website publishes a list of loan-seekers from non-governmental organisations (NGOs) or (micro finance institutions) MFIs. A prospective lender chooses the borrower of their choice, makes payments through an online platform and gets monthly or quarterly payments on the loan, with 6-8 per cent returns. The MFIs or the NGOs, which are in charge of monitoring the loans, also take care of disbursements and collections at the ground level, and get 6-7 per cent returns. The online platforms that facilitate retain 2-5 per cent as fees. Thus, the end cost of a borrower comes anywhere between 17 and 20 per cent.