Reserve Bank of India Deputy Governor R Gandhi on Monday said the central bank will shortly come up with a concept note on peer-to-peer (P2P) lending and will take a decision on how to regulate the space.

At present, the space is unregulated but is considered to be the fastest growing new form of lending. “While encouraging innovations, the RBI cannot be oblivious to the risk posed by such institutions to the system,” Gandhi added.

P2P companies work as online marketplaces that bring individual borrowers and lenders onto one platform for loan transactions without the intervention of traditional financial institutions such as banks and NBFCs.

The Deputy Governor said the central bank would discuss with the Securities Exchange Board of India (SEBI) on regulating the space. Gandhi was speaking at a non-banking financial companies (NBFCs) summit organised by Assocham. Later, on the sideline of the event, Gandhi elaborated that the discussion paper will examine whether to regulate the sector at all or not.

“We are going to come up with a discussion paper because it (P2P lending) is a new development. We will have to take feedback from all stakeholders.

“We will discuss the pros and cons, whether we should be regulating or not regulating. Based on the feedback we will take the final call,” Gandhi said.

While SEBI has come up with a discussion paper exploring the securities side of the business, the RBI is yet to come up with its own discussion paper from the lending and borrowing side.

Registration of NBFCs In his speech, Gandhi said the RBI is working on simplifying the registration process of NBFCs. He said the registration process will soon be made completely online and the application documents for the process will be made simpler.

He also said that the NBFC sector cannot be equal to the banking sector and the central bank’s stance is to “harmonise, not equalise” the two. Totally exempting small NBFCs from regulations “may not be feasible” from the customer service point of view, he said.

“The rules that we prescribe for a bank cannot be exactly applied for NBFCs. Harmonising means to remove the arbitrage. Whatever needs to be done, that much we will do, but beyond that we will recognise that this is a separate entity and banking is a separate entity,” Gandhi said on the sidelines. “It would be prudent to keep the deposit-taking activities limited to banks as at the time of maturity there could be asset-liability mismatches for NBFCs. However, the NBFCs are free to take up financing activities even as the RBI is trying to reduce the number of categories NBFCs are branched into.

“But the central bank is also open to allow new kinds of NBFCs if the situation so requires,” Gandhi said.

Wholly-owned subsidiaries The Deputy Governor said three foreign banks have applied to set up wholly-owned subsidiaries in India, which include the State Bank of Mauritius and DBS of Singapore.

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