What is Peer to Peer lending (P2P)? How far the recent regulation of P2P by RBI will influence the credit discipline in India?
Refer - Business Line
IAS Parliament 6 years
KEY POINTS
Peer to Peer Lending
· P2P companies provide a platform or market for borrowers and lenders.
· P2P lending ideally refers to unsecured lending mostly happens on online platforms, outside of the parameters of banks or non-banking finance companies.
RBI Regulation
· RBI had recently declared that, all peer-to-peer lending (P2P) platforms would be treated hereafter as non-banking financial companies (NBFCs) and will be regulated by the Reserve Bank of India (RBI).
· RBI had also released guidelines to regulate NBFC – P2P.
· Hitherto, wary of an unregulated marketplace the RBI has cleared the way for more investors to join the fray.
· Apart from lending, a helping hand to the Centre’s financial inclusion drive by providing easy access to credit.
· RBI’s directives will also ensure that only serious playersable to comply with the norms, stay in the game.
· The clarification that an NBFC-P2P can act only as an intermediary, facilitating lending activity, and not take deposits or lend on its own, spares such platforms of the burden of provisioning or capital adequacy.
· It also helps avoid conflict of interest which could have risen if P2P platforms were allowed to use their own funds for on-lending.
· The guidelines also require P2Ps to become members of credit information companies and maintain and update credit information of the borrower.
· This should help mitigate risk of defaults, attract investments and drive innovations.
Unaddressed issues
· The blanket cap of 10 lakh on a lender’s exposure across all platforms can repress flows.
· The cap of 50,000 on exposure of a single lender to the same borrower serves the purpose of mitigating the risk of default, the regulator can remove or increase the cap on a lender’s aggregate exposure.
· Many P2P platforms have been employing agents to offer recovery services.
· While the RBI has cautioned P2P platforms against the use of coercion, there is still lack of clarity among players on their legal rights when proceeding against borrowers.
jerry 7 years
peer to peer lending
