 "A photo of RBI headquarters in Mumbai (pic: Kamlesh Pednekar)")
The Reserve Bank of India on Thursday came up with a discussion paper on peer-to-peer (P2P) lending in a bid to regulate the fast-growing form of lending.
The central bank had hinted at such a paper earlier this week when Deputy Governor R Gandhi had said that it would hold discussion with the Securities and Exchange Board of India (Sebi) for the same. “We will have to take feedback from all stakeholders. We will discuss about the pros and cons, whether we should be regulating or not regulating.
Based on the feedback, we will take the final call,” Gandhi had said. While the Sebi would have explored the securities side of this business, the RBI would have seen the lending and borrowing side of it, he added.
Business Standard answers a few questions on the concept of P2P lending and its implications in the financial sector.
What is P2P lending?
Peer-to-peer lending is a form of crowd-funding with the help of an online platform. The portal acts like an aggregator and matches lenders with borrowers with an intention of providing unsecured loans. The purpose of lending could be for funding variety of businesses, mainly to small entities.
Is this sector regulated?
No. Currently, this sector does not fall under the purview of the Reserve Bank of India. They are run by individuals, proprietorship, partnership or limited liability partnerships, which do not fall under the central bank’s ambit. The firms are registered under the Companies Act.
What is the RBI proposing?
The central bank wants to treat it as an intermediary non-banking finance company (NBFC) and bring it under its jurisdiction.
Such entities must have a minimum capital requirement of Rs 2 crore so that it could have promoters who have their ‘skin in the game’.
A direct transfer of funds from the account of lenders to the bank accounts of borrowers has been suggested.
A prudential limit on maximum contribution by a lender to a borrower may be set, given that the lenders may include uninformed individuals.
P2P lenders cannot show lending and borrowing in its balance sheets. It is allowed only to take fees and provide information on creditworthiness. Most importantly, its management should be stationed in India.
What rules apply in case of recoveries?
Current regulations that are applicable in case of other NBFCs will be made applicable to P2P platforms.
How big is this business?
Globally, cumulative lending to the tune of 4.4 billion pounds has been done through P2P platforms. However, in India, this is still in a very nascent stage.
