Leverage ratio & p2 p lending

1. Leverage Ratio &
P2P Lending

2. Contd…
The new kid on the block of lending and financing operations is peer-to-peer
(P2P) lending, however, in order to ensure that the sector is well protected,
RBI is talking about introducing a form of leverage ratio for it.
This has got most of the players spooked.
Here's a fineprint:
1. What is Leverage Ratio?
Leverage ratio in simple terms is the relation between the amount of eq uity
that a company has and the amount of debt that it is carrying in its books. It
is a measure ment of the capacity of the company to meet its financial
obligations.

3. Contd…
2. How is it applied in the case of other financial institutions?
In case of payments banks, the RBI set a lever age ratio of 3% and in case of
full service banks the concept of lev banks the concept of leverage ratio is
taken from the Basel III guidelines which is 3%. However, the Indian regulator
has set the leverage ratio for banks at 4.5%.
3. Why is leverage ratio now in discussion?
The Reserve Bank of India in the consultation paper on P2P lending has
mentioned `leverage ratio' which has alarmed industry experts. Though the
regulator has not yet clarified how it would be applied to P2P platforms, P2P
players are feeling it might put a restriction on the business expansion of the
nascent sector.

4. Contd…
4. What is the RBI saying about leverage ratio?
RBI, in the consultation paper, said, “With a view to ensure that there is
enough skin in the game at a later date, leverage ratio of 12 may be
prescribed so that the platforms do not expand with indiscriminate
leverage.“
5. How can it be harmful for P2P lending platforms?
If by leverage ratio the regulator meant that it would put an upper limit on
the total amount that can be lent through a platform, then it could restrict
the expansion of the sector. Since the RBI is planning to set `2 crore as the
initial starting capital, if they set a leverage ratio of 7 then a platform would
not be able to lend more than `14 crore, until they raise more funds. That
kind of limitation is not something that P2P players are in favour of.

5. For Details and Appointment contact:-
Parveen Kumar Chadha… THINK TANK
(Founder and C.E.O of Saxbee Consultants & Other-Mother
marketingandcommunicationconsultants.com)
Email :-saxbeeconsultants@gmail.com
Mobile No. +91-9818308353
Address:-First Floor G-20(A), Kirti Nagar, New Delhi India Postal Code-110015