P2P lending platforms to get transparent, safer

With these platforms getting access to credit bureaus, small borrowers, who find it difficult to get loans from banks, can use them to build a credit profile

The norms on peer-to-peer (P2P) lending platforms issued by the Reserve Bank of India (RBI) will help make them more transparent and also safer for customers. After classifying P2P platforms as non-banking financial companies (NBFC) last month, the central bank has now introduced rules they need to follow and mechanisms that they need to put in place. 

“The regulations ensure that P2P platforms will protect the interests of lenders and borrowers will get faster access to credit,” says Shankar Vaddadi, founder and director of i-lend. He adds that one of the biggest benefits of being classified as an NBFC is that P2P platforms can now get access to credit bureaus.

P2P players will henceforth have to share loan-related data with credit bureaus. The borrower’s credit information will also have to be mandatorily shared with lenders, who will be able to take more informed decisions about whether to give loans. P2P players believe this will help reduce default rates and enable lenders to get better returns on the loans they have offered. Earlier, even if a borrower defaulted on a loan taken through a P2P platform, it didn’t hamper his chances of getting a loan from a bank or an NBFC, as his record was not shared with credit bureaus.

Loan data records shared with credit bureaus will also help genuine borrowers who don’t yet have a credit profile. Many institutional lenders don’t give a loan to someone who doesn’t have a credit history. Such borrowers can use P2P platforms to build a credit history. Many P2P platforms even offer Rs 5,000-10,000 loans for purchase of mobiles, tablets and laptops. There are higher chances for borrowers with a low credit score to get a loan on these platforms, even if banks and NBFCs reject their application. But the rates can be much higher — around 24-36 per cent.

In fact, borrowers can now raise bigger loans through P2P platforms. Most of them were earlier restricted to loans up to Rs 2.5 lakh. The RBI has said a borrower can take a loan of up to Rs 10 lakh across all platforms. “This will help entrepreneurs and small businesses in need of credit,” says Rajat Gandhi, founder and chief executive officer (CEO), Faircent.

The norms also mandate P2P platforms to put a recovery mechanism in place, in case of defaults. As part of the recovery process, all P2P platforms ask borrowers to submit post-dated cheques. In case of a default, the platform can file a case of cheque bounce. “Earlier, the courts would reject the case at the very first hearing, pointing out that we don’t have any locus standi in the matter. After being categorised as an NBFC, we can now pursue cheque bounce cases,” says Bhavin Patel, co-founder and CEO at LenDenClub. At the same time, the borrower also gets relief in case there is a genuine delay in repayments. The platforms need to follow the RBI's recovery guidelines. They cannot hassle the borrower unnecessarily.
Many P2P platforms offered a guarantee to lenders for the money they deployed. These were done through different structures, such as an investor protection fund, to attract lenders. The RBI has mandated that platforms cannot offer any such guarantee in any form. “Such practices could impact platforms in the future. The industry is small at present. Imagine someone with a Rs 2,000-2,500 crore book providing any capital guarantee,” says Gandhi.

With the RBI becoming the regulator for these platforms, they also need to put a proper grievance mechanism in place and appoint a nodal officer. In case there is no satisfactory reply from the platform, one can now approach the RBI to resolve the issue.