It is widely expected that the Union Budget India 2019 may come up with certain incentives and provisions to make them not only popular but also help in improving mechanism for accessing credit even for those who do not have a satisfactory credit profile.
Union Budget India 2019: Peer to peer lending or P2P lending is a not-so-new concept in the country. Although the guidelines for P2P lending were released way back in October 2017 and there are also quite a handful of players in the industry, the overall size of the industry may not be huge. It is widely expected that the Union Budget India 2019 may come up with certain incentives and provisions to make them not only popular but also help achieve a robust mechanism for accessing credit even for those who do not have a satisfactory credit profile or credit score.
Essentially, P2P platforms are kind of a marketplace where lenders and borrowers meet to match their lending and borrowing needs. For those looking to invest and earn a relatively higher return while those who are looking to borrow funds if their credit profile makes them unsuitable with banks, P2P is the place to go to. However, the risks attached in lending money exists and one needs to be not just aware of them but also have a adequately diversified portfolio for optimum results.
Here is what Raghavendra Pratap Singh, Co-Founder-i2iFunding, a peer to peer lending firm told us about the expectation from Budget 2019, what to expect on the interest rate front over the medium term and in a falling interest rate scenario what are the investment options available to Indian investors.
What are your pre-budget expectations for the P2P lending industry from the Modi 2.0 government?
P2P Lending Industry is too small at present and there is a very high probability that it will not get any mention in the budget. However, the potential of P2P Lending industry is huge, and the government should create favourable situation for this industry to grow. P2P Lending can solve the problem of credit flow to MSME sector which generates maximum employment and is the backbone of economy.
Apart from removing the limits imposed on maximum lending and borrowing amount, government should make interest earned on P2P Lending tax free. This will be a revolutionary step, which will make P2P Lending a very lucrative investment option for retail customers and boost this sector to unprecedented growth.
Do you foresee the interest rates to come down in the short-to-medium term?
Reduction in Repo rate by RBI is the third consecutive reduction in a row by the RBI in this calendar year. Repo rate is now lowest in last 5 years and chances of further reduction are low but RBI stance is still accommodative and if benign inflation and slow growth continue for another quarter, RBI may reduce it further.
After the recent rate cut, do you think banks will start lowering lending rates? What about the deposit rates?
Ideally, banks should lower lending rates but lately, it has been observed that banks are not able to pass rate cuts benefits to customers due to slow deposit growths. Banks are facing stiff competition from other investment options which is hurting their deposit growth rates. Due to NBFC crisis, deposits may again start flowing down to banks which will, in turn, reduce both deposit rates and lending rates in the near future. Some banks with better credit to deposit ratio have been reducing their deposit rates after rate cuts.
In a falling interest rate scenario, what according to you, are the investment options available to Indian investors?
There are multiple investment options available to customers, like mutual funds, equities, debt funds etc. But all investors are not fully equipped to take advantage of market-linked investment options especially senior citizens. P2P Lending is fast becoming an easy investment option for people who are not interested in market-linked investment options. It is very easy and provides lots of flexibility to investors. An investor can easily earn between 12-18 per cent on these platforms.
Any other information that you wish to share on the upcoming Budget 2019?
India’s GDP growth has slipped to a five-year low of 5.8 per cent in the January-March quarter. Credit flow to corporates and MSME sector has slowed down by banks and traditional NBFCs. Mudra has not been able to fulfil the gap and give the necessary impetus to MSME sector. Government should explore all other options available which can flow money available with retails customers to these sectors directly. P2P Lending platforms are fully geared up to make this happen. As mentioned earlier, government should make interest earned on P2P Lending tax free which will attract a lot of retails customers towards this sector.