P2P Lending Startups Seek Relaxation of Norms, Writes to RBI
Peer-to-peer lending startups, through their industry association, have written to the Reserve Bank of India seeking a relaxation of stringent norms for the fledgling sector.
The body said that survival would be a challenge unless lending rules are relieved. The association counts sixteen peer-to-peer lending platforms that are authorized by the RBI, as members.
“In the last eighteen months since the rules were declared, the most important challenge being faced by the nascent business is that the lender limit of Rs 10 lakh. This single issue is threatening the very existence of the business,” wrote Rajiv M Ranjan, secretary, Association of NBFC Peer to Peer lending Platforms, in the letter.
The body has recommended an instantaneous extension of the limit to Rs one crore for retail investors, which might enable high net-worth people to lend money through these platforms. Further, it has additionally recommended removal of the cap altogether for regulated establishments like banks and non-banking finance companies (NBFCs) extending loans through these platforms.
Although this has been a long-standing industry demand, the regulator has not, however, indicated it'd relax the principles. This has hampered scale-up by these corporations, and successively created investors drawback from the sector, say, industry executives.
Apart from one or two of players, most of the startups haven't been able to attract massive cheques from major venture capital investors who have otherwise wired in money into other fintech startups.
“Today, VCs are cautious of investment in the P2P platforms in India, primarily because of the Rs ten lakh limit per lender,” the association said in the letter. “In contrast, other similar platforms that are originating loans and obtaining these funded through NBFCs and banks are operating without any alternative regulatory oversight and haven't any such obligations.”
As per business estimates, over 100,000 borrowers and 200,000 lenders have used these platforms and also the overall exposure of the business may be Rs 350 crore.
Further, companies are losing on an average Rs 1,000 per loan for borrowers who avail a minimum of Rs 3 lakh through the platform, given that the value of getting retail lenders is around Rs 4,000, the association said.
If the restrictions are removed, the value of obtaining lenders may be reduced and also the business may be created viable, it said.
Experts, however, said there was a reason why the limits are put in place.
“The restrictions are essential for keeping a detailed tab on the participants’ exposure to this space; additionally it'll guarantee unrestrained business practices from rising in this space,” said Rishabh Mastaram, founder, RGM Legal, who specializes in the crowdsourcing business.
Further, a blow-up within the P2P sector in China has caused the RBI to become more careful with these firms.
“With the industry being underneath regulatory control, we don't see any instances of a repeat of China happening in India. There has been quarterly reporting done to the RBI from all the regulated entities,” Ranjan of the industry association told the sources.