RBI increases P2P lending limit by 5X to Rs 50 lakh

In what will be a big relief and matter of joy for peer-to-peer (P2P) lending platforms, the Reserve Bank of India (RBI) has increased the loan disbursal limit for them from Rs 10 lakh to Rs 50 lakh.

However, the borrowing limit for an individual remains at Rs 50,000 across all NBFC peer-to-peer platforms.

The move will help startups in this space such as Faircent, Lendbox, LendenClub, i-lend and i2iFunding to flourish and regain the lost momentum in terms of interest from venture capitalists.

Industry experts, startups and the Association of P2P Lending Platforms, who have been advocating to ease the norms, have welcomed the revolutionary move by the banking regulator.

The strict rules framed by RBI has forced these players to operate in a limited manner while there is vast scope in this sector where India is gradually beating China, like in the past year.

For instance, China recorded $192 million worth of fintech funding in the first quarter, whereas India witnessed 27% more funding in the quarter at $286 million.

India will have to learn from China, one of the biggest market for P2P lending players. Leakage in regulation, defaults, and frozen funds have led several Chinese P2P lending platforms to terminate their operations.

Going forward, it would be interesting to see how the Indian government deals with the regulation and controls these platforms to prevent them from becoming another story like in China.

Apart from P2P lending, RBI has also introduced a revised rule for minimum KYC, prepaid payment instruments (PPIs) and issuance of on-tap licenses for small finance banks.

According to RBI, the new PPI can be used only for the purchase of goods and services up to Rs 10,000. The loading/reloading of such PPI will be only from a bank account and customers will be able to make only digital payments, including bill payments and merchant payments.