Reserve Bank of India (RBI) deputy governor R Gandhi said on Monday that the central bank was actively studying the peer-to-peer lending arrangements and would soon come out with a discussion paper.
The deputy governor aid while innovations are mandatory, it is important to be conscious of risks arriving from such innovations. Gandhi was speaking at the first summit of non-banking financial companies (NBFC), organised by the Confederation of Indian Industry.
“The Reserve Bank is actively studying the peer-to-peer lending arrangements that are slowly gaining traction. While recognising the need for innovative products and services, we should be conscious about the risks that may emanate out of such innovations. Based on the detailed study, we intend to bring out a discussion paper for public consultation,” he said.
The Securities & Exchange Board of India has already brought out a consultation paper on the topic. Peer-to-peer lending is an online platform which helps match lenders/investors with borrowers/issuers in order to facilitate unsecured loans.
The interest rate is set by the platform.
“In peer-to-peer lending, there is no investor protection by way of a compensation scheme to cover defaults in this market as there is with deposit guarantee schemes for bank deposits. Retail investors, who do not have capacity to absorb defaults, may lose significant proportions of their investments if there are any defaults,” the paper had indicated.
Because it is a new innovation, all the sides are needed to be understood, Gandhi said.
The deputy governor indicated that the central bank may consider re-looking at the strategic debt restructuring (SDR) regulations after receiving feedback from banks. SDR is a mechanism through which banks can convert a large part of the debt taken by a company into equity.
“On the basis of feedback, we will be re-looking at it — either reaffirming the regulation which we we have already done or if any tweaking is needed, we will definitely do,” Gandhi said.
He also indicated that the RBI will continue to approve new types of NBFCs if the economy requires them. One such is NBFC-Account Aggregator (NBFC-AA) about which the RBI had announced in July, Gandhi said.
“The NBFC-AA will provide a technology-enabled solution to a person to view at one place the position of his financial assets across institutions under different sectoral regulators. Guidelines for the same are under preparations,” he said.
The central bank is also working towards harmonisation of the regulations with a view to reducing the number of NBFC categories since there are several categories of NBFCs and varied regulations across these categories.
“Going forward, we will work toward greater harmonisation of the regulations with a view to reducing the number of NBFC categories,” he said.