Mumbai: Peer-to-peer lending (P2P) platforms in India have requested the Reserve Bank of India (RBI) to allow non-bank trust companies to act as trustees for fund transfers between the participants—investors and borrowers—on their platforms.
P2P lending entails lending money to individuals or businesses through online services that match lenders with borrowers.
RBI guidelines released on 4 October require a P2P platform to have at least two escrow accounts for fund transfer, to be operated by a trustee promoted by the bank which maintains these accounts.
“At least two escrow accounts, one for funds received from lenders and pending disbursal, and the other for collections from borrowers, shall be maintained. The trustee shall mandatorily be promoted by the bank maintaining the escrow accounts," the RBI notification said.
According to P2P lenders, most banks are not keen on offering escrow services to P2P platforms as volumes are low and ticket sizes small.
“It took us six months to get a trustee. Most of the bank promoted trustees were unwilling to come on board as the industry is nascent," said Mukesh Bubna, founder and chief executive at Monexo Innovations Ltd, a Mumbai-based P2P platform.
Also, a majority of such trustee firms have been promoted by public sector banks, which will also mean shifting of escrow accounts to public sector banks.
Bubna said P2P platforms require fast disbursal of funds and private banks are prompter and more digitally sound for such transactions. There are just two trust companies that have been promoted by private banks.
“We have a limited choice now. Shifting the escrow accounts to a public sector bank will not be very efficient," Bubna said.
India has about 15 P2P firms, of which many are yet to appoint a trustee. In such a scenario, P2P platforms may either have to transfer their existing escrow accounts to a bank that has promoted a trust company or reach out to the limited number of trustees available.
So far, the firms have informally reached out to the regulator, said two people close to the development. They requested anonymity. They are expected to send formal feedback to the regulator soon.
Email sent to RBI did not elicit any response.
They also said P2P firms will wait for the RBI to make clarifications before applying for a certificate of registration. Existing non-banking financial company (NBFC)-P2Ps shall apply within three months from the issuance of these directions.
“This creates a monopoly. A limited number of trustees managing transactions for multiple P2P firms may lead to conflict of interest and also a higher fee being charged by the trustees for managing the escrow accounts," said Raghavendra Pratap Singh, co-founder at i2iFunding.com, a Noida-based P2P platform.
Singh said the firm had sought a clarification from the banking regulator and has suggested allowing trust companies approved by the Securities and Exchange Board of India (Sebi) to act as trustees for P2P transactions.
P2P lenders are in the process of forming an association representing the P2P industry in various fora.
Bhuvan Rustagi, co-founder and chief operating officer of New Delhi-based P2P platform Lendbox, said P2P companies are putting together their feedback on the guidelines for the RBI to consider.
“We have also sought a clarification from the regulator around the appointment of a trustee. Shifting of escrow accounts to another bank will be a complex process and may take time," Rustagi said.
A few P2P platforms like Faircent, Monexo Innovations Ltd and LenDenClub have already set up operations based on the trustee model prescribed by RBI. These firms are also seeking clarity from the regulator as they may have to otherwise move their escrow accounts to a different bank.
“We will be sending our feedback officially to the RBI after Diwali. While a trustee is crucial in the P2P model, switching over to another bank is a cumbersome process as escrows dealing with borrower repayment are already mapped to the earlier bank," said Bubna of Monexo.
On 4 October, RBI released operational guidelines for P2P platforms which were notified as non-banking financial companies (NBFCs) in a gazette notification in September.
The firms will also be seeking clarity on the limit imposed on investor exposure as there is no way of monitoring the total amount invested by an individual across platforms.
“Credit information companies can only provide borrower data. Also, many of our current investors have an exposure of more than Rs10 lakh," said Singh of i2i.
According to the RBI notification, the aggregate exposure of a lender to all borrowers at any point of time, across all P2P companies, shall be subject to a cap of Rs10 lakh.