Will RBI relax the restrictions placed on fintech startups lending in the peer-to-peer or P2P category? The restrictions were placed by the regulator in 2017 limiting the P2P loans to a cap of Rs 10 lakh. It was then that the P2P lending platforms received their recognition as NBFCs as well. However, as it happens with business, recognition came with monitoring and imposition of restrictions etc. The stakeholders had taken up with RBI that they have been getting requests for loans of higher denominations but have had to say ‘no’ to the applicants due to the restrictions imposed by RBI.
RBI has now asked these companies to submit it proof that they had received applications for loans of amounts higher than Rs 10 lakh and the subsequent decision to decline the loans. The communication from the central bank has gone to the Association of NBFC Peer-to-Peer Lending Platforms. If the association is able to submit the proof and if RBI is convinced, will it remove the restriction? After all, the RBI, banks, and the NBFCs are all looking to ensure there is no dearth of liquidity in the market and credit flow where required is facilitated without any hindrance. The association itself is demanding that the limit be raised to a more considerate Rs 1 crore.
Obviously, RBI will scrutinise the data provided by the lenders. RBI would want to ascertain if these claims are genuine and that those denied the loans were indeed deserving of the loans.
These lenders have been claiming that institutional investors planning to invest in their ventures have held back due to these restrictions by the regulator. Ultimately, the lenders have to source funds from outside. If their own lending model is technology-based and an indiscriminate lending is resorted to, these startups must be allowed to raise equity through investments made by external sources.
At the bottom of this issue is the requirement to distinguish between retail lending which may be addressed at the millions of salaried employees who are unable to raise funds through the regular banking channels. They may otherwise be deserving the credit they are seeking.
Hopefully, the RBI will come out with a positive response once it scrutinises the information submitted by the startups.