The RBI’s cautious stance indicates a calibrated approach
The peer-to-peer (P2P) lending market in India is a nascent one — with a rather modest size of about ₹300 crore. But it has the potential to scale up manifold. P2P platforms facilitate funds for borrowers who might not have got them from traditional sources such as banks, and the possibility of high returns for lenders who take on the risk of funding such borrowers. If run well, P2P platforms can improve financial inclusion in the country. Since the RBI’s October 2017 guidelines, P2P lending and borrowing have seen strong growth.
But many P2P platforms are not happy with the RBI’s prudential norms that restrict maximum lending or borrowing by a single lender or borrower to ₹10 lakh across platforms. Also, a single lender cannot lend more than ₹50,000 to the same borrower. The platforms say that these limits are low and impede growth by keeping away high net worth and institutional lenders. They also contend that the ₹10 lakh limit is insufficient for business borrowers including MSMEs. The platforms have a point.
But so does the RBI. Its seemingly conservative approach likely stems from a few factors. One, it seeks an orderly, calibrated growth of the market in India learning from the bad experience of other countries. In China, hyper-growth and lax regulation such as allowing P2P platforms to themselves lend has led to a meltdown. Two, P2P lending is a high-risk game with the loan being unsecured and the lender taking on the risk of default by the borrower. If individual lenders lose big money, they could walk away permanently from P2P platforms. Also, high limits may tempt individual borrowers to go overboard and eventually default. That said, a balance between caution and growth is needed. The RBI can consider separate limits for individual and corporate lenders/borrowers. While it can increase the limits for individuals gradually, the limits for corporates can be upped to more reasonable levels soon.