After the RBI guidelines, we (P2P platforms) now offer a legitimate business case for both lenders and borrowers.
The Reserve Bank of India’s (RBI) guidelines for peer-to-peer (P2P) lending will attract more people to these platforms and help bring down the interest rates for borrowers, Bhavin Patel, founder and CEO of LenDen Club, told Shritama Bose. Players in the segment have sought the regulator’s clarifications on the permissibility of institutional lenders on P2P platforms, he added. Excerpts:
What do the RBI guidelines on P2P lending mean for players like you?
After the RBI guidelines, we (P2P platforms) now offer a legitimate business case for both lenders and borrowers. As far as the operational bit is concerned, these guidelines will offer a lot of clarity and transparency to the lenders because more than 70% of the regulations are about transparency and exchange of information between lenders and borrowers.
Will the RBI guidelines have an impact on the lending rates?
In the current scenario, the P2P lending market is a minuscule percentage of the huge lending market in India. But, due to the sentimental impact of the regulation, many more lenders may take to P2P lending, resulting in higher liquidity on such platforms. This will eventually lead to reduction of the interest rates offered to borrowers in this segment.
Some P2P platforms have expressed unhappiness about the prudential norms, especially the caps on lending and borrowing. What is your take?
We had lenders who had more than Rs 10 lakh of investment when the regulations came. Their first reaction was: we were happy without regulations. But we also understand the regulator’s concern because people with limited understanding of the system may join the platform. To avoid that kind of misselling of the instrument, the regulator has put in place these protective measures. They may be wanting to observe the space for 6-9 months before opening it up.
Will the guidelines impact P2P lending in the short term?
I don’t think it will. In fact, it will have the opposite effect. On our platform, the average lender’s investment is about Rs 5-5.5 lakh, which is well below the Rs 10-lakh limit set by RBI. However, there exists a 20:80 or 10:90 ratio, which means 10-20% of the lenders will have some exposure over the Rs 10-lakh limit. So, while the guideline will not restrict the capital coming into the platform, we would expect RBI to come up with a clarification on the institutional lenders like NBFCs on investment platforms wanting a higher exposure (than the prescribed limit).
The guidelines are silent on whether only individuals can lend through P2P platforms or even institutions are allowed. So, are we assuming that both can participate?
On the face of it, we can assume that. If we look at the definition of ‘person’ as used by the ministry of finance or the ministry of corporate affairs, it doesn’t cover institutions or groups of people. But when it comes to RBI regulations, in one of the regulations for wallets, they have clearly identified that ‘person’ refers to all kinds of entities — individuals, groups of people or institutions. We have sought RBI’s clarification on this as well.