P2P Lenders Hope of an Increase in Lending Limit as RBI Awakens to Their Demands
RBI’s demand for P2P lending platforms to provide authentic data has certainly aroused hope for positive change among stakeholders!
Background
The Association of NBFC Peer-to-Peer (P2P) Lending Platforms had written a letter to the RBI in July this year, bringing to light the hurdles created by the restricting guidelines.
The said guidelines that were issued in 2018, limits the amount of credit that these lenders can offer to a customer at Rs 10 lakh but such regulations are stifling the growth of the industry.
Rajiv M Ranjan, Secretary, Association of NBFC Peer to Peer Lending Platforms, in the letter wrote, “In the last 18 months since the guidelines were announced, the biggest challenge being faced by the nascent industry is the lender limit of Rs 10 lakh. This single issue…is threatening the very existence of the industry.”
This letter encapsulates all the continuing demands that have been ignored until now and obviously have hindered the growth of this industry, which is still in its infancy.
One of the demands, along with a slew of others, put forward by the Association, is to increase the limit to 1 crore for the retail customers.
The P2P Lenders also suggested that the RBI should consider doing away with the 10 lakh lending cap for regulated institutions like Banks.
Specifics of RBI’s Letter
This letter is seen as a sincere attempt by the Regulator to comprehend the challenges faced by NBFC Peer to Peer Lending Platforms due to regulatory restrictions.
It has asked the industry to respond to certain specific issues like:
- Furnish authentic, computable data
- Number of instances where creditworthy borrowers were refused loans
- Confirm proof to illustrate that the demand for loans was much higher than the supply
The letter reads, “The association is requested to furnish quantitative data, if any, with respect to P2P platforms on instances of partial funding of borrowers, creditworthy borrowers registered but not granted loans.”
In short, the Regulator wants to confirm the authenticity of the grievances of the P2P Lenders.
Response from Platforms
The most noteworthy response is of course from Rajiv M Ranjan, Secretary of the Association of NBFC P2P Lending Platforms, who said, “Regulators quizzing around the raised concerns by the P2P industry is a reflection of a positive movement. In the present dynamics, we consider it essential to bring the ground reality in front of everyone so that the industry gets some space to exercise its actual potential.”
Surendra Kumar Jalan, MD, and CEO, OMLP2P has to say this, “The data (sought) is very comprehensive in nature. Some P2P companies are incurring losses due to lower volumes and higher operational costs. This (review) may help RBI in making a decision on the Rs 10 lakh-cap which is a bottleneck.”
Another view doing the round among the Executives of the industry is that the extensive data being collected along with PAN numbers will surely bring transparency along with ensuring compliance.
Getting access to all the details will certainly provide an insight to the RBI on the financial health and sustainability of the P2P Lenders Platform.
Way Ahead
The industry stalwarts want the Regulatory authority to look at P2P lenders beyond the retail lending point of view and seriously consider the platform for the growing demand for business loans.
They are of the opinion that by completely barring them from participating in this sector is hindering the business growth of the P2P Lenders.
A founder of a P2P lending startup opens-up about this and says, “With the liquidity crisis, we have seen demand from borrowers jump four times, thereby we need more lenders to participate in the platform. I think now with two years since the RBI’s regulations came out it is time for some relaxation in the norms.”
Another point of contention that the RBI needs to seriously ponder over is the statistics provided by the P2P lending companies regarding the loss incurred by them. They state that on average they lose one thousand per loan for borrowers whereas the cost of acquiring retail lenders is around four thousand.
Final Word
India is a growing economy and with the GDP being strong the demand of the hour is that the RBI seriously considers relaxing the restricting regulations of P2P lending companies.
The credit demand in India is projected to be worth $1.41 Trillion by 2022 and the estimated growth rate in credit demand is 3.73% between FY17 and FY22, as per DataLabs by Inc42 estimates.
Thus, to cater to this huge demand, all financial institutions should be empowered, giving them the opportunity to be a partner in this growth story.
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