The Reserve Bank of India (RBI) is closely looking at the evolving peer-to-peer lending system which is slowly gaining popularity.
“We are studying peer-to-peer lending and we will come out with a discussion paper. Already Sebi has come out with the similar kind of paper,” RBI deputy governor R Gandhi said. Peer-to-peer lending is the practice of lending money to unrelated individuals, without going through a traditional financial intermediary such as banks or non-banking finance companies. This lending takes place online on peer-to-peer lending companies’ websites using different lending platforms and credit checking tools.
Peer-to-peer lending, which may not involve collaterals, has gained popularity with the rise in online users. Several online companies have surfaced in the last two years offering peer-to-peer loans.
The RBI is looking at another category of NBFCs — NBFC account aggregators for which the announcement was made this July, he said. NBFC account aggregators will provide technology-enabled solutions to a person to view at one place the position of financial assets across institutions under different regulators, he said, adding that “guidelines for the same are under preparation”.
He said the RBI is working towards harmonising regulations for non-banking financial companies to reduce the number of categories in the sector. “Going forward, we will work towards greater harmonisation of the regulations to bring down the number of categories within the NBFC sector,” Gandhi said.
Noting that business model of NBFCs is inherently risk-prone, Gandhi blamed “weaker underwriting standards, enhanced risk-taking capabilities and increased complexities of their activities” as the reasons for this. NBFCs are also exposed to key risks emanating from regulatory gaps, arbitrage and contagion effects, Gandhi said.
They are also more prone to systemic risks due to concentration of exposure to specific sectors. Total number of NBFCs came down from 51,929 in 1997 to 11,769 in September 2015, while their asset size grew from Rs 75,913 crore in December 1998 to Rs 16 trillion (Rs 16 lakh crore) in September 2015.
According to a CII-BCG report, credit penetration in India is low as compared to other economies. “Added to this is the penetration of NBFCs, which is further down. NBFCs’ credit penetration in GDP of India is at 13 per cent well behind economies like Thailand and Malaysia at 25 per cent and China which is at 33 per cent. However, between 2005 and 2015, the share of credit of NBFCs in India rose from 10 per cent to 13 per cent. The share growth is not only observed in traditional NBFC domains like commercial vehicle (CV) finance, but also in products like mortgages where commercial banks are very active,” it said.