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P2P lending firms to get a leg up with easing of investment cap

Peer-to-Peer (P2P) lending firms are likely to get some respite from the Reserve Bank of India (RBI), as the banking sector regulator 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.

The P2P industry has, for the past one and a half years, been consistently asking the RBI for a higher investment cap from individual lenders, as the current Rs 10 lakh ceiling is seen as a major impediment to scaling up their businesses.

"The RBI is considering our demand on investment cap and we have received some early indications that it will be raised to around Rs 25 lakh by the end of this quarter," a source familiar with the development said. "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."

According to some experts, the reason why the Indian regulator was taking a conservative stance could be because of the ugly fallout of the sector in China, where huge default rates and fraud had led to closure of many such P2P lenders in recent years. From a high of more than 2,000 P2P lending platforms, the number of such players in China has fallen by almost half in the current year.

Against this backdrop, RBI wants to take small steps with prudent regulations before opening up the industry for big investors, sources added.    

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.

"As the first step, if the investment cap is raised, we will be able to raise much more funds from high net-worth individuals, who are eager to pump in more money into these platforms," said Abhinandan Sangam, co-founder and chief technology officer at Bengaluru-based P2P player, Finzy.

Though P2P lending service providers have been in the business since early 2014, RBI regulations pertaining to the industry only came in September 2017. The apex bank had mandated P2P lenders to be registered as non-banking financial companies (NBFCs).

Under the current regulations, the total exposure of an individual investor to all P2P players is capped at Rs 10 lakh. Similarly, the exposure of a single investor to the same individual borrower shall not exceed Rs 50,000. 

The RBI norms had also put restrictions on the loan amount that can be availed by a borrower at Rs 10 lakh across all P2P players. Similarly, in order to contain asset-liability mismatch, the maturity of the loans provided by such players are capped at a maximum of 36 months. The regulations also make it mandatory for all P2P start-ups to obtain a certificate from the borrower or lender that the limits prescribed by the RBI have been adhered to.

In early January, RBI had also asked NBFC-P2Ps to provide details on their monthly spends and break-up of expenses, apart from seeking the PAN card details of the lenders. Many participants see it as precursor to RBI's future regulations on the investment aspect, as some P2P players are incurring losses due to high operational cost and lower volumes.

"It's the only C2C (consumer-to-consumer) facing industry which provides normal investors an opportunity to put their money in retail assets. So, growth of this industry creates another avenue for investors to diversify their portfolio," added Sangam of Finzy.