Skip to main content

RBI seeks to regulate peer-to-peer lending

RBI seeks to regulate peer-to-peer lending
The Reserve Bank of India (RBI) on Thursday came up with a discussion paper on peer-topeer lending (P2P), seeking to regulate the fast emerging crowd funding platforms as the new financing model has assumed importance too significant to be ignored.

Interestingly, the platform owners and investors welcomed the development as regulation gives RBI’s stamp of approval to a business that is completely banned in countries like Japan and Israel.

“Any space where money changes hand should be regulated. Regulation is good for the industry, but it should be light regulation” said Mohandas Pai, former board member of Infosys and investor in Faircent.com, a P2P lending platform. “Regulation will help us in our business and we can approach the court of law as legal entities for our needs and even for recovery,” said Bhavin Patel, co-founder of LenDen Club, a P2P platform.

In fact, RBI itself is aware of this and sounded a little hesitant in giving this recognition to the business model. But the central bank officials, including Governor Raghuram Rajan, have said the RBI cannot remain indifferent to new innovation in financing activities and growth in P2P sector. To allow regulation, RBI’s discussion paper said the platforms should adopt a company structure that can then be regulated by the central bank. Currently, the P2P platforms are run by individuals, proprietorship, partnership or limited liability partnerships — areas outside RBI’s jurisdiction. The P2P platforms are largely technology companies registered under the Companies Act and acting as an aggregator for lenders and borrowers thereby, helping create a match between them.

“Although nascent in India and not significant in value yet, the potential benefits P2P lending promises to various stakeholders (to the borrowers, lenders, agencies etc.) and its associated risks to the financial system are too important to be ignored,” RBI said.

Presently, there are around 30 start-up P2P lending companies in India, RBI said. Globally, the cumulative lending through P2P platforms at the end of fourth quarter of 2015 reached Rs 4.4 billion, from just Rs 2.2 million in 2012. While banned in some countries, in some other jurisdictions, the P2P platforms are either considered part of banking, or are intermediaries.

RBI’s own discussion paper favoured the platforms to act as intermediaries, to be registered as non-banking finance companies with a minimum capital of Rs 2 crore, so that promoters have “skin in the game”. The discussion paper also sought to curtail the freedom of these companies significantly and said funds raised through the platforms should go directly from the lenders’ bank account to the borrowers’.
The Mint, New Delhi, 21th September 2017

Comments

Popular posts from this blog

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

RBI rushes in to prop up falling rupee

RBI rushes in to prop up falling rupee India’s central bank reportedly intervened in the currency markets on Monday to prevent a further slide in the local unit, which breached the 67 mark to a dollar for the first time in 15 months amid a widening trade gap and runaway import bills fuelled by high crude-oil prices. Some state-owned banks were seen selling dollars aggressively, interventions that market dealers attributed to the central bank’s strategy to stem the decline of the Indian rupee against the US currency. The rupee is the worst performing among a dozen Asian monetary units in the past three months. It lost 4.25 per cent to the dollar during the period, show data from Bloomberg. On Monday, the Reserve Bank of India (RBI) is said to have sold about Rs 800 million collectively on the spot and exchange traded futures markets, dealers said. An email sent to RBI remained unanswered until the publication of this report. The currency market has seen such a strong central bank interven…

GST Refund of Rs 20,000 Cr Pending: Exporters’ Body

GST Refund of Rs  20,000 Cr Pending: Exporters’ Body Refund of over Rs 20,000 crore on account of Goods and Services Tax (GST) is pending with the government with more than half the amount stuck as input tax credit, Federation of Indian Export Organisations said on Tuesday. While claims over Rs7,000 crore were cleared in March, the amount was Rs 1,000 crore in April.However, after exporters’ request, the GST council and tax department are organizing a second phase of Special Refund Fortnight starting May 31, which will enable exporters to draw their refunds at a speedy pace. Many exporters have been unable to file the refund of input tax credit due to technical glitches, exports and claim happened in different months. The major challenge lies on ITC refund especially because the process is partly electronic and partly manual which is cumbersome and add to the transaction cost, the exporters’ body said. On IGST, refunds are getting delayed due to airline and shipping companies not submitt…