NBFC P2P lending needs to demonstrate viability to sustain business model

Non-banking finance companies, which has grown significantly during the last few years, have contributed to almost 10 per cent of the total assets of the financial sector, said a CARE Ratings report. 

According to the report, with P2P lenders coming under RBI purview, the system has been able to create confidence amongst participating lenders and borrowers. The P2P lending involves matching of borrowers and investors via an online platform managed by P2P operator. 

The RBI has recently introduced guidelines for NBFC P2P, which defined the scope of activities of a P2P platform and prudential norms with respect to maximum leverage ratio, aggregate and individual borrowing and lending limits of a participant and maximum loan tenure. 

The guidelines also talk about other aspects like fund transfer mechanism, participant grievance redressal mechanism and various transparency and disclosure requirements to be undertaken by a P2P platform. Apart from this, sharing of data to the credit information companies is also an important norm prescribed by RBI as it will help the P2P model to maintain asset quality. 

Citing the global growth of P2P lending in terms of both volume and number of players, the report said that the industry in India is at very nascent stage and has limited operating history. The ability of the P2P operator to assess borrowers based on their credit models in terms of accuracy and consistency on a large scale is yet to be demonstrated. 

P2P operators have to demonstrate their viability in terms of their ability to bring in volumes and sustain their business model on a continuous basis, said the CARE Ratings report, while adding that despite the global existence of P2P lending for more than ten years it has been struggling with issues such as frauds, higher delinquencies and financial sustainability.

The Ratings expects that P2P lending will continue to grow despite facing challenges of scaling up substantially. It also cites a cautious approach for the various market participants including NBFC P2P, investors and borrowers to create a sustainable model in the long term.