In the light of mounting Non-Performing Assets by banks, most of the financial institutions including banks have become wary of giving both secured and unsecured loans. "Due to limited availability of funds, a new form of crowd funding method of Peer-To-Peer (P2P) Lending has started in online space where those having excess capital can lend it to borrowers for an interest," said Prof. Saurabh Agarwal, Professor of Finance and Dean (Academics), Indian Institute of Finance, Greater Noida.
According to Prof. Saurabh, the portal which acts as an intermediary does not guarantee the payment and is only a medium where people can meet and lend or borrow. Both lenders and borrowers pay a commission to the online platform arranging this transaction.
From the legal perspective, crowd funding is regulated by SEBI and lending and borrowing is regulated by RBI. Hence, in this case both SEBI and RBI need to regulate the P2P lending. Lending through P2P has grown dramatically from 2.2 million GBP in 2012 to 4.4 billion GBP in 2015 according to P2PFA. Hence, this unregulated sector is growing many folds, said Prof. Saurabh Agarwal.
According to him, from the regulatory perspective in China, Ecuador, Egypt, South Korea and Tunisia it is unregulated. China has the largest amount of P2P loans amounting to $150bn and about 2600 lenders. In countries like Australia, Argentina, Canada, New Zealand, United Kingdom, it is regulated like an intermediary requiring registration and following a proper conduct of business. In UK, P2P loans are about 2.2 bn with around 347 lenders. In France, Germany and Italy, P2P lending platforms have to obtain banking licence, and make complete disclosure.
European Union has 250 P2P platforms with $3.9bn of P2P loans. In United States of America, some states ban the practise of P2P lending, while some states permit it in a limited manner. Also, it is regulated by Federal regulation and Securities and Exchange Commission. Despite dual regulatory authorities US has $ 6.6 bn of P2P lending and borrowing. In some countries like Israel and Japan, it is prohibited, said Prof. Saurabh.
Prof. Saurabh opined that P2P lending is mainly advantageous to borrower as it has lower cost of financing than raising money in unorganised sector. Also, the documentation is far simpler making it easier to accesses the loan. The lenders also benefit as they get a higher return than bank deposits.
According to him, since this P2P lending is growing at a very fast rate with more than 20 companies in last one year itself, it will be prudent to classify them as a NBFC and they should be subject to all the requirements of a NBFC. This should take care of all concerns related to money laundering and adherence to FEMA provisions.
Prof. Saurabh said that the minimum capital requirement of 2 cores recommended by RBI is unjustified keeping in mind that these are start-up trying to provide loans to people who do not otherwise have access to unsecured loans. The brick and mortar requirement, experienced directors, reporting requirement etc. as proposed by RBI look good on paper as despite all prudential norms been present for Indian Banking sector, we are still facing a huge NPA burden of Rs. 1.14 lakh crore of debt. Total NPAs till now is over 8 lakh crore.
He opined that rather than having such requirements which are similar to a bank, RBI and SEBI should think of out of box and put restriction on the people who may lend. This way only those lenders will access these markets who are flushed with lot of money and are not much affected with losses to the tune of Rs. 20 to 30 lacs. Initially, also, small lenders who look for quick gains should not be permitted to lend through this mechanism. As regards borrowers, only those borrowers whose credit worthiness is positive with CIBIL should be permitted to access funds through these P2P companies.
Prof. Saurabh strongly feels that without prudential regulations in this sector, these P2P companies will become Pseudo banks without a banking licence facilitating flow of money outside the purview of either RBI or SEBI which may prove to be disastrous in the light of India being a victim of terrorist attacks and in-depth study of the existing P2P platforms like i2ifunding, Faircent, I-Lend.in etc is also recommended before implementing any rules or regulations.
Registration may facilitate growth to $ 50 billion in India. Registration may also help these financial intermediaries to exploit the market stating registered with RBI and recognized by Government of India. In case P2P financial intermediaries are registered and regulated, an interest range need to be determined by the regulators RBI or SEBI. P2P would also facilitate liquidity to MSME and use of excess cash funds, felt Prof. Saurabh Agarwal.
According to Prof. Saurabh, the portal which acts as an intermediary does not guarantee the payment and is only a medium where people can meet and lend or borrow. Both lenders and borrowers pay a commission to the online platform arranging this transaction.
From the legal perspective, crowd funding is regulated by SEBI and lending and borrowing is regulated by RBI. Hence, in this case both SEBI and RBI need to regulate the P2P lending. Lending through P2P has grown dramatically from 2.2 million GBP in 2012 to 4.4 billion GBP in 2015 according to P2PFA. Hence, this unregulated sector is growing many folds, said Prof. Saurabh Agarwal.
According to him, from the regulatory perspective in China, Ecuador, Egypt, South Korea and Tunisia it is unregulated. China has the largest amount of P2P loans amounting to $150bn and about 2600 lenders. In countries like Australia, Argentina, Canada, New Zealand, United Kingdom, it is regulated like an intermediary requiring registration and following a proper conduct of business. In UK, P2P loans are about 2.2 bn with around 347 lenders. In France, Germany and Italy, P2P lending platforms have to obtain banking licence, and make complete disclosure.
European Union has 250 P2P platforms with $3.9bn of P2P loans. In United States of America, some states ban the practise of P2P lending, while some states permit it in a limited manner. Also, it is regulated by Federal regulation and Securities and Exchange Commission. Despite dual regulatory authorities US has $ 6.6 bn of P2P lending and borrowing. In some countries like Israel and Japan, it is prohibited, said Prof. Saurabh.
Prof. Saurabh opined that P2P lending is mainly advantageous to borrower as it has lower cost of financing than raising money in unorganised sector. Also, the documentation is far simpler making it easier to accesses the loan. The lenders also benefit as they get a higher return than bank deposits.
According to him, since this P2P lending is growing at a very fast rate with more than 20 companies in last one year itself, it will be prudent to classify them as a NBFC and they should be subject to all the requirements of a NBFC. This should take care of all concerns related to money laundering and adherence to FEMA provisions.
Prof. Saurabh said that the minimum capital requirement of 2 cores recommended by RBI is unjustified keeping in mind that these are start-up trying to provide loans to people who do not otherwise have access to unsecured loans. The brick and mortar requirement, experienced directors, reporting requirement etc. as proposed by RBI look good on paper as despite all prudential norms been present for Indian Banking sector, we are still facing a huge NPA burden of Rs. 1.14 lakh crore of debt. Total NPAs till now is over 8 lakh crore.
He opined that rather than having such requirements which are similar to a bank, RBI and SEBI should think of out of box and put restriction on the people who may lend. This way only those lenders will access these markets who are flushed with lot of money and are not much affected with losses to the tune of Rs. 20 to 30 lacs. Initially, also, small lenders who look for quick gains should not be permitted to lend through this mechanism. As regards borrowers, only those borrowers whose credit worthiness is positive with CIBIL should be permitted to access funds through these P2P companies.
Prof. Saurabh strongly feels that without prudential regulations in this sector, these P2P companies will become Pseudo banks without a banking licence facilitating flow of money outside the purview of either RBI or SEBI which may prove to be disastrous in the light of India being a victim of terrorist attacks and in-depth study of the existing P2P platforms like i2ifunding, Faircent, I-Lend.in etc is also recommended before implementing any rules or regulations.
Registration may facilitate growth to $ 50 billion in India. Registration may also help these financial intermediaries to exploit the market stating registered with RBI and recognized by Government of India. In case P2P financial intermediaries are registered and regulated, an interest range need to be determined by the regulators RBI or SEBI. P2P would also facilitate liquidity to MSME and use of excess cash funds, felt Prof. Saurabh Agarwal.
Author :- http://www.merinews.com/
Reposted :- http://www.credit4loan.com/
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