Reserve Bank of India studies crowdfunding and P2P lending

India is keeping up to date with new forms of finance. Following last month’s statement from the Securities and Exchange Board of India that it will release crowdfunding regulations “soon”, we now learn that the Reserve Bank of India (RBI), disclosed it is researching peer to peer lending and will publish a document regarding online lending soon.RBI deputy governor, R. Gandhi, stated: “RBI is actively studying the peer-to-peer lending arrangements that are slowly gaining traction. While recognising the need for innovative products and services, we should be conscious of the risk emanating from such services. Based on a detail study we intend to bring out a discussion paper for public consultation. RBI is aligned to the developmental needs of the economy and therefore will continue to approve of new types of NBFCs if the economy so requires them.”

Mumbai: The Reserve Bank of India (RBI) is actively studying peer-to-peer (P2P) lending arrangements being offered by online firms and will soon come out with a discussion paper on the issue, said R. Gandhi, deputy governor, RBI. The RBI’s scrutiny of P2P lending platforms comes as the number of firms offering such services is on the rise, even though they are not regulated.

“RBI is actively studying the peer-to-peer lending arrangements that are slowly gaining traction. While recognising the need for innovative products and services, we should be conscious of the risk emanating from such services. Based on a detail study we intend to bring out a discussion paper for public consultation," said Gandhi, while speaking at a conference in Mumbai on Monday.

The deputy governor hinted at a new class of non-banking financial companies (NBFCs) being carved out for such lending arrangement. “RBI is aligned to the developmental needs of the economy and therefore will continue to approve of new types of NBFCs if the economy so requires them," he said.

The number of P2P lending companies in the online space has been increasing significantly. So far this year, close to 20 new online P2P lending companies have been launched, according to data compiled by Tracxn, a data analytics company. As of now, there are over 30 online P2P lending start-ups in India. This is much lower than in China, where the number of registered P2P companies is reported to have crossed 2,000.

Commenting on the micro finance industry, Gandhi said that microfinance institutions (MFIs) that are not converting into small finance banks will have an opportunity to grow as the space is vacated by firms that are converting into small banks. Earlier this year, the RBI issued 10 small finance bank (SFBs) licences, with most of the approvals being granted to existing MFIs.

“NBFC-MFI sector is going to shrink heavily as the big 10 of them convert themselves into SFBs in the next one year or so. This can yet bring a higher impetus for other MFIs to grow, not just because of the space vacated by the big 10 but also because of the capital that will be released when many of them pay off their strategic investors as part of their capital restructuring," said Gandhi.

A number of upcoming SFBs are likely to tap the primary markets over the next 12 months as they seek to reduce foreign shareholding to meet the RBI’s rules, which restrict foreign holding at 49% for these entities.