The Reserve Bank of India (RBI) is considering the possibility of permitting peer-to-peer (P2P) platforms to enter secured lending, reported Business Standard.
This is to enable them to diversify the risks emanating from having a completely unsecured book with relatively new-to-credit customers who have been outside the reach of legacy credit vendors.
According to the broad contours of the mechanism that has figured in talks between the banking regulator and P2P players, transactions and fund movement will be through an escrow account.
The asset is to be hypothecated in the name of a trustee; in the case of a lease, the same will be purchased by the P2P entity and then pledged to the trustee.
The trustee, in either case, will have the final say in the transfer or sale of the asset to prevent abuse by either the P2P platform or the borrower.
And once the borrower squares off the loan or the lease period is over, the hypothecation is to be removed and the asset is either released to the borrower or sold. The realised value shall be given to the lender through the escrow account.
There has been exponential growth in P2P lending in recent years. According to the RBI’s Financial Stability Report of December 2021 (FSR: December 2021), lending through P2P platforms — a non-banking financial company (NBFC) variant — made up for a small portion of overall NBFC lending at ₹2,093 crore (as on September 30, 2021).