Keep P2P lending out of leverage ratio limits: Experts

Welcoming the RBI's move to bring the nascent peer-to-peer (P2P) lending under regulation, experts want the banking regulator to keep the sector out of leverage ratio limits as they are not deposit-taking entities.

RBI last month released a consultation paper on P2P lending with a view to bringing the emerging activity under regulations.

P2P lending -- providing loans to individuals or businesses through online services which bring together lenders and borrowers-- is a new concept in India, but it is growing globally in the countries like the UK and the US. In 2015, the UK granted USD 32 billion P2P loans, while the US saw USD 22 billion financing.

"Any regulatory change makes the system more streamlined and if it is done in a constructive manner keeping in view the benefits of all stakeholders, can definitely boost the sector," Rajat Gandhi, Founder and Chief Executive Officer of Faircent, told PTI.

Welcoming the move, another player 'i2ifunding' said it will weed out non-serious players from the market, but P2P players should be exempt from leverage ratio limits.

"RBI has mentioned about leverage ratio being set up for P2P players. We believe that leverage ratio limits should not be applied on P2P players as P2P players are not taking any deposits from investors", said Vaibhav Pandey, Co-Founder i2ifunding.

RBI said the leverage ratio may be prescribed to ensure enough skin in the game at a later date and that the platforms do not expand with indiscriminate leverage.

It has proposed a minimum capital requirement of Rs 2 crore for the players and barring them from promising extraordinary returns.

In Asia, China is seeing a rapid growth and has about 1,500 P2P lending platforms.

"When it comes to India, we are seeing huge demand, not only from the borrowers but also from the lenders. In India, P2P lending is expected to attain a size of USD 4-5 billion in the next 5 years", Gandhi said.

InnoVen Capital COO Ajay Hattangdi said: Companies want relaxations in the minimum capital requirement and clarity on the applicability of the proposed leverage ratio."

"A key area of concern is that the applicability of state money lending regulations to lenders on P2P platforms has not been addressed in the draft guidelines. The matter may even fall outside the regulatory purview of RBI", he added.

Besides, attention is to paid on the onerous process of obtaining NBFC licence, which includes such norms as having a director with prior NBFC experience and previous track record in financial services, he added.