P2P lending industry stares at muted growth post RBI crackdown

The new RBI guidelines have barred P2P lenders from offering ‘immediate withdrawal facility’, which was a major attraction for investors, reports Financial Express, adding that several players have already communicated with their customers informing them that they have discontinued the facility.

Peer-to-peer (P2P) lending is a type of platform that allows participants to borrow and lend sums of money without having to rely on a conventional financial institution to control transactions.

P2P lending platform's immediate withdrawal facility was marketed under the guise of secondary market transactions.

For example, in this set-up, if a lender which has originally lent an amount of Rs 100 for a 12-month period decides to withdraw the remaining Rs 80 after two months, the P2P platform facilitates this by selling the remaining loan (Rs 80) to a new lender which is interested in lending, and essentially, this process functions as a transfer of loans from the original lender to a new one, according to Financial Express.

The central bank has also barred the use of algorithm in selection of borrowers, and from now on, lenders have to choose borrowers manually, as per reports.

According to experts, the P2P lending industry is also expecting operational costs to increase, while under the new norms, a platform will require funds in the escrow accounts of lenders and borrowers to be cleared within a day (T+1), which means there will be higher transfer charges.

Earlier on Friday (August 16), the apex bank tightened the rules for P2P lending platforms, prohibiting them from taking on any credit risk, offering credit enhancement, or providing guarantees.

The RBI said, in the revised guidelines, that a P2P platform should not promote peer-to-peer lending as an investment product with features like tenure-linked assured minimum returns, liquidity options, etc, reports Financial Express.