RBI Raises Peer-To-Peer Lending Limit Fivefold

India’s central bank has raised the lending cap for peer-to-peer platforms fivefold, providing a boost to such lending.

The aggregate exposure of a lender to all borrowers at any point of time, across all non-banking financial company-peer-to-peer platforms, will be capped at Rs 50 lakh against Rs 10 lakh at present, the Reserve Bank of India said in a statement on Developmental and Regulatory Policies issued on Dec. 5.

“A review of the functioning of the lending platforms and lending limit was carried out by the RBI” and therefore the RBI decided to give a push to these lending platforms by raising the single lender limit, it said.

The cap on exposure of a single borrower, however, remains at Rs 50,000 across all NBFC peer-to-peer platforms.

This will enable peer-to-peer platforms to serve more customers and borrowers as the funding limits have been increased, according to Mukesh Bubna, founder of Monexo, a peer-to-peer platform.

“We have several ultra-high net worth individuals who were waiting for the lending limits to be raised. They were restricted to lending only Rs 10 lakh each, so they opened several accounts through family members,” Bubna told BloombergQuint. “This change will help peer-to-peer players access more funding as many new investors who were so far only testing the platform will be incentivised to come on board.”

Abhishek Gandhi, co-founder and chief financial officer of RupeeCircle, said the announcement should “definitely” attract more investors towards peer-to-peer platforms.

“We expect the existing investors on our platform to scale up their investments. Also, more HNIs would now look at peer-to-peer lending as an investment option, which is a very positive sign for the industry,” Gandhi said.

Faircent Founder Rajat Gandhi said over the last few months, the platform has launched various loan products targeting small businesses and self-employed individuals.

“The increased limit will ease credit supply benefiting MSMEs and this is an opportunity for lenders to create far more stable and diversified portfolios thereby improving returns,” he said. As a next step, the limits set on institutional lenders can be removed by the regulator so that they can be further incentivised to participate through NBFC-peer-to-peer platforms, he said.

The central bank also did away the requirement of escrow accounts operated by a bank-promoted trustee for the transfer of funds “having to be necessarily opened with the concerned bank” to provide flexibility in operations of peer-to-peer platforms.

This decision shows that RBI is confident with peer-to-peer platforms’ performance, said Rajiv Ranjan, secretary of the Association of NBFC-Peer-To-Peer Lending Platforms and founder of Paisadukan.

“There were issues regarding the escrow requirement as all peer-to-peer platforms had to either use ICICI Bank or IDBI Bank’s services, leading to high costs due to a lack of choice,” Ranjan told Bloombergquint. “With this requirement removed, the costs of operations will come down which will improve the overall service for our borrowers and lenders.”