The Reserve Bank of India (RBI) on Wednesday said all non-bank players engaged in the business of peer-to-peer (P2P) lending would be classified as non-banking financial companies (NBFCs). The central bank said in a gazette notification, “For the purpose of this notification, the term ‘the business of a peer to peer lending platform’ shall mean the business of providing under a contract, the service of loan facilitation, via online medium or otherwise, to the participants who have entered into an arrangement with that platform to lend on it or to avail of loan facilitation services provided by it.”
A P2P lender is typically a fintech platform which helps lenders and prospective borrowers get in touch with each other. In India, three broad categories of fintech lenders operate – those who connect individual lenders to borrowers, those who help institutional lenders identify suitable borrowers for their products, and those who disburse loans off their own books. The third category of lenders already qualify as NBFCs. Wednesday’s notification will apply to lenders belonging to the first category, industry players said. Rajat Gandhi, founder and chief executive officer of Faircent, which primarily hosts individual lenders on its platform, said one will have to wait for the final guidelines for clarity on the matter. “This means that the government is recognizing that it’s an important sector and it needs to be regulated at a very nascent stage for it to grow. That is the key takeaway from this notification.”
Vivek Belgavi, partner and India fintech leader at PwC India, said being classified as an NBFC is likely to make fund-raising easier for P2P lenders. However, whether they will be entitled to participate in the debt market as issuers, like traditional NBFCs do, is not clear at the moment. It will also aid the expansion of such lenders across geographies, Belgavi added. “Under the current norms, anyone who wants to lend money is governed by different laws for moneylenders in every state. That constrains the expansion of P2P lenders.” Customer protection will also be taken care of by the regulation, he observed.
Bhavin Patel, co-founder and chief executive officer of LenDenClub, which also matches individual lenders to borrowers, said the regulatory notification will allow P2P lenders to take action against defaulters. “In our view, this RBI regulation will bring much-needed legal clarity in the system, and lenders/platform will get legal rights to take adequate steps against defaulters,” he said, adding that regulation will also increase acceptability of P2P lending among retail borrowers.