According to the founders of several of these lending platforms, given that the Reserve Bank of India is scrutinising the sector, they are adopting a “wait-and-watch” policy before stitching these deep integrations.
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“It takes time, effort and money to have these deep API integrations with platforms who can help us source customers and borrowers; we will now initiate new partnerships only when we get regulatory clarity,” said the founder of a P2P platform.
Liquiloans has now slowed down on new such partnerships, industry insiders said. Cofounder Achal Mittal did not respond to ET’s queries.
LenDenClub has scaled down its partnership with BharatPe and has almost run down the portfolio by 70%, said cofounder Bhavin Patel. According to data shared by the company, its assets under management halved to Rs 944 crore in January 2024 from Rs 2,018 crore a year earlier.
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Regulatory scrutiny
Over the last six to eight months, the RBI has conducted meetings with the sector participants to understand their business models and also look at how they are following the existing guidelines, multiple industry insiders said.“Meetings have happened between the regulator and the industry as a whole, as well as at the level of each company, so the sector has gone slow on partnerships and such innovation,” said a senior industry executive on the condition of anonymity.
The industry is expecting some regulatory clarification and perhaps an update on the regulations too in the coming months.
After RBI deputy governor Rajeshwar Rao spoke about the nascent sector on Friday, alarm bells have rung across the sector.
“Of late, some of the business practices of NBFC-P2Ps do not appear to be in line with the regulatory guidelines…Let me make it absolutely clear that any breach of licensing conditions and regulatory guidelines is non-acceptable,” Rao said during a speech at an industry event in Mumbai.
He called out NBFC-P2Ps for underplaying risks through various means such as promising high or assured returns, structuring the transactions, providing anytime fund recall facilities, etc.
“The industry does not offer assured returns, but there are some aspects of business around hurdle rates and others which seem to have irked the RBI; we are hopeful that the regulator will give us more clarity on the way forward,” said the industry executive cited anonymously.
Hurdle rate is the practice of offering a minimum rate of return on an investment.
Also read | Nudged by RBI, P2P lenders look to diversify partnerships
Industry on alert
Since getting regulated, growth in the P2P lending industry has become sluggish, mainly as it struggled to source both borrowers and lenders from the open market.
Over the last two years, by working with large platforms which have a captive user base, they started to see higher volumes and in turn better customers. But in the effort to acquire customers quickly, some of them started selling risky P2P loans as attractive investment opportunities, which irked the regulator.
“Today most P2P industry players are offering P2P lending as a liquid fund or fixed deposit with a fixed term and return or holding a ‘margin of safety’. These offerings are either akin to a collective investment scheme (CIS) as per Sebi or in violation of deposit taking (rules) as per the RBI Act,” said Mukesh Bubna, cofounder of Monexo, a Chennai based P2P lending startup.
Monexo has stayed away from these practices, Bubna said.
According to the industry executive quoted previously, the RBI is unhappy with return-based rates offered by certain platforms on P2P investments. Perhaps the regulator wants the industry to go back to fixed rates on loans disbursed, he added.