 "P2P players want nodal agency but not NBFC tag")
Entities in the peer-to-peer (P2P) lending space want a nodal agency to keep track of the money in the system but they do not want to be classified as a non-banking financial company.
The companies in the space said they were happy that the Reserve Bank of India (RBI) had decided not to put a blanket ban on this activity and was, instead, looking at regulating the space.
However, they had some reservations about the discussion paper that was floated a month ago. They have given their feedback to the central bank regarding this. Tuesday is the last date for submitting stakeholder views to the discussion paper.
Bhuvan Rustagi, co-founder at lendbox.in, said these firms shouldn’t be classified as conventional non-banking financial companies (NBFCs). “We are a financial technology firm and so I believe that this space should have tailor-made guidelines, instead of making the rules applicable on NBFCs applicable on us as well,” explained Rustagi.
One suggestion that has been made by almost every P2P lending firm was that there should be a nodal agency to keep track of the money being transferred from a lender’s to borrower’s account and vice versa. The central bank had said funds would have to necessarily move directly from the lender’s bank account to the borrower’s bank account to obviate the threat of laundering. Another suggestion made by various players was that they be allowed to report defaulters’ data and also have access to the credit information bureaus. Experts pointed out this would happen automatically in case these were classified as NBFCs, as suggested by RBI.
The players also asked that the electronic clearing services debit system be allowed for individual accounts. This would ensure that money was debited on a specific date every month. In case of a default, it can be treated as a cheque bounce and reported to the credit bureaus. RBI had also proposed a minimum capital requirement of Rs 2 crore for these firms.
And this was where the street was divided. While some of the big players said this sum was essential to ensure smooth functioning, several others said the capital should be proportional to the amount of outstanding loan or such an amount should be made applicable over a period of time, instead of making it mandatory from day one. “The leverage ratio that RBI has suggested shouldn’t be made applicable. As at no point of time we as a firm are taking money or lending to anyone. Therefore, it should not apply to us, as in the case of NBFCs,” said Vaibhav Pandey, Co-Founder i2ifunding.
Some firms have also requested that non-resident Indias be allowed to lend. In the discussion paper, the central bank had stated that the no-cross border transactions would be allowed. Another player suggested that instead of only one person lending the entire amount to a borrower, several people should be allowed to pool in.
“We have asked that the crowd-funding model be followed to de-risk the system,” said the founder of another P2P lending company, requesting anonymity.
P2P LENDING EXPLAINED
What is P2P lending?
P2P lending allows an individual to lend or borrow money to or from other unrelated individuals without assistance from any financial intermediary. This is mainly done via an online platform that connects lenders and borrowers.
What are the advantages?
People who may not be eligible to get loans from banks or such institutions can get loans. It also allows customers to become lenders and earn interest.
What are the disadvantages?
Interest rates are higher than what a bank or non-banking financial company might charge. Currently, it is not regulated so consumers cannot approach any ombudsman in case of distress.
The companies in the space said they were happy that the Reserve Bank of India (RBI) had decided not to put a blanket ban on this activity and was, instead, looking at regulating the space.
However, they had some reservations about the discussion paper that was floated a month ago. They have given their feedback to the central bank regarding this. Tuesday is the last date for submitting stakeholder views to the discussion paper.
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In a draft paper, RBI had said that they planned to treat these crowd-funding platforms as intermediary NBFCs.
Bhuvan Rustagi, co-founder at lendbox.in, said these firms shouldn’t be classified as conventional non-banking financial companies (NBFCs). “We are a financial technology firm and so I believe that this space should have tailor-made guidelines, instead of making the rules applicable on NBFCs applicable on us as well,” explained Rustagi.
One suggestion that has been made by almost every P2P lending firm was that there should be a nodal agency to keep track of the money being transferred from a lender’s to borrower’s account and vice versa. The central bank had said funds would have to necessarily move directly from the lender’s bank account to the borrower’s bank account to obviate the threat of laundering. Another suggestion made by various players was that they be allowed to report defaulters’ data and also have access to the credit information bureaus. Experts pointed out this would happen automatically in case these were classified as NBFCs, as suggested by RBI.
The players also asked that the electronic clearing services debit system be allowed for individual accounts. This would ensure that money was debited on a specific date every month. In case of a default, it can be treated as a cheque bounce and reported to the credit bureaus. RBI had also proposed a minimum capital requirement of Rs 2 crore for these firms.
And this was where the street was divided. While some of the big players said this sum was essential to ensure smooth functioning, several others said the capital should be proportional to the amount of outstanding loan or such an amount should be made applicable over a period of time, instead of making it mandatory from day one. “The leverage ratio that RBI has suggested shouldn’t be made applicable. As at no point of time we as a firm are taking money or lending to anyone. Therefore, it should not apply to us, as in the case of NBFCs,” said Vaibhav Pandey, Co-Founder i2ifunding.
Some firms have also requested that non-resident Indias be allowed to lend. In the discussion paper, the central bank had stated that the no-cross border transactions would be allowed. Another player suggested that instead of only one person lending the entire amount to a borrower, several people should be allowed to pool in.
“We have asked that the crowd-funding model be followed to de-risk the system,” said the founder of another P2P lending company, requesting anonymity.
P2P LENDING EXPLAINED
What is P2P lending?
P2P lending allows an individual to lend or borrow money to or from other unrelated individuals without assistance from any financial intermediary. This is mainly done via an online platform that connects lenders and borrowers.
What are the advantages?
People who may not be eligible to get loans from banks or such institutions can get loans. It also allows customers to become lenders and earn interest.
What are the disadvantages?
Interest rates are higher than what a bank or non-banking financial company might charge. Currently, it is not regulated so consumers cannot approach any ombudsman in case of distress.