Peer-to-Peer (P2P) lending firms are likely to get some breather from the Reserve Bank of India (RBI), as the central bank is likely to raise the ceiling on fund infusion from individual investors into these platforms to around Rs 25 lakh from Rs 10 lakh currently, reported Business Standard.
“As it is a nascent industry, the central bank wants to make sure the sector grows in a structured way and that any easing of regulations doesn’t jeopardise the current business model, ” says the report.
According to existing P2P lending guidelines, an individual’s total exposure to P2P lending can not be more than Rs 10 lakh, across all the platforms combined.
Currently, through all existing P2P lending platforms, a lender can lend a maximum of Rs 50,000 to a single borrower and the total money lent across all the platforms combined can not be more than Rs 10 lakh. The report however does not say anything on raising single borrower lending limit.
It was in October 2017 when RBI, to limit the risk exposure of individuals, imposed limits on how much can be lent and how much can be borrowed by individuals from P2P lending platforms. Before the 2017 RBI guidelines, there were no specific limits and the platforms were free to take their own decisions.
It is being said that RBI’s change in guidelines to increase the limit comes in response to coolapse of China’s P2P market, where huge default rates and fraud had led to closure of many such P2P lenders in recent years. According to Shanghai-based researcher Yingcan Group, more than 400 P2P lending platforms collapsed from June 2018 – August 2018.
As P2P lending market is now developing in India with faster pace, RBI thus wants to take precautionary measures with prudent regulations before opening up the industry for big investors and avoid China’s fate.
If the investment limit is raised, the P2P lending platform will be able to raise much more funds from high net-worth individuals (HNIs), who are eager to pump in more money into these platforms but are unable to lend more than Rs 10 lakh.
According to Raghavendra Pratap Singh, Co-founder of online p2p lending startup, i2ifunding.com, “The minimum exposure of HNIs ranges from Rs 2.5 crore to Rs 5 crore. The cap is affecting in many ways. HNIs are unable to lend more than Rs 10 lakh. Also, the NBFCs and banks that may have funded the platform have gone after the regulations. This has restricted the supply side.”
In October last year, most of existing & new P2P lending companies have teamed-up and formed a registered body – Association of NBFC P2P Platforms to represent the Indian NBFC-P2P industry at various national as well as at international forums. A month later, Former Infosys Chief Financial Officer V Balakrishnan joined the association as a patron Member.
Currently, around 11 start-up companies hold NBFC-P2P licences with a total loan book size of around Rs 200 crore. Some of the entities working in this space are Finzy, Faircent, OML Technologies, i2iFunding, Peerlend, LenDenClub, Paisadukaan, LiquiLoans and AnyTimeLoan.
Recently, London-based Welendus, a short-term peer-to-peer (P2P) lending platform, is all set to enter the competitive Indian market of P2P lending. The UK startup has just raised an undisclosed amount in funding which it will use for future expansion into India.