Rising costs from T+1 timeline may push weaker P2P players to the brink

While there are 26 licensees, only 10-11 players are active in this space, with the industry's assets under management totalling Rs 11,000 crore

The P2P (peer-to-peer) lending industry association has requested that the Reserve Bank of India (RBI) reconsider its mandate requiring funds in escrow accounts to be cleared within one day (T+1). In the absence of regulatory relief, industry players have indicated they will absorb the additional costs associated with the T+1 timeline for now. However, there are concerns that platforms with limited capital may struggle to survive under these conditions, potentially jeopardizing the already fragile industry.

“We have fairly high hopes that T+1 reversal should happen. We are simply asking for not having to do micro transactions. If the timeline is increased to T+3 or T+5, the industry should be fine,” said an executive of a P2P platform requesting anonymity.

With the T+1 timeline being introduced, “we have to remit each and every repayment from the borrower within this timeline. This will result in increased cost for the players since they have contracts with banks and trustees to process the repayments”, the executive said.

On the lenders’ side, since they take time to allocate their capital, now the concern is that the platform has to return the unallocated money to the lender within the T+1 timeline, which will again add to the transaction cost, the executive added.

Last week, the RBI tightened guidelines on P2P lending platforms, flagging regulatory violations by some of these entities. The RBI had stated that some P2P lending platforms were promoting P2P lending as investment products, offering liquidity options, and functioning as deposit-takers and lenders rather than just acting as intermediaries. The central bank envisages NBFC-P2P lending platforms as an intermediaries providing an online marketplace to the participants in P2P lending.

“I will not shy away from saying that we used to promote it as an investment product, and we still don't know how else to promote it. The RBI itself had mentioned the lender as an investor on the platform, and we don’t know why they would have a problem with it now,” a founder at a P2P lending platform said, requesting anonymity.

In the revised guidelines, among other things, the RBI mandates that the funds transferred into the lenders’ escrow account and borrowers’ escrow account should not remain in these accounts for a period exceeding T+1 day, where ‘T’ is the date on which the funds are received in these accounts.

While there are 26 licensees, only 10-11 players are active in this space, with the industry’s assets under management (AUM) totalling Rs 11,000 crore.

Meanwhile, P2P lending platforms are working towards devising strategies to diversify their business, forecasting negligible revenues from their current business models moving forward, following the tightening of guidelines by the RBI.

“At present, we are just internalising the shock since the guidelines just came in last week. None of the platforms had thought of anything beyond P2P, and now everyone is cognizant that they will have to diversify and not have 100 per cent revenues on P2P moving ahead,” the second person quoted above said.

Unless we get a payment aggregator licence, the cost of adhering to the new T+1 timeline would be unsustainable, the first person quoted above said.

Meanwhile, executives said that they had hoped for a consultative approach to the guidelines that were issued last week. “We were not consulted on this unlike other places where there is a working group or a consultation paper. They cannot claim ignorance that they were unaware of our practices since there were consultations, audits and scrutinies before this,” the person added.

In a Limbo

> Industry unwilling to carry out micro transactions

> Prefer an increased timeline of T+3 or T+5 days

> Players now looking to diversify, citing negligible revenues from current models

> Lenders take time to allocate their capital, platforms would need to return the unallocated money to the lender within the  T+1 timeline, thus adding to transaction cost