India’s peer-to-peer (P2P) lending industry is grappling with soaring non-performing assets (NPAs), according to a study by Capitalmind Financial Services. NPAs reached ₹1,163 crore in FY24, marking a 146% rise from ₹472.1 crore in FY23.
| Company | Value | Change | %Change |
|---|
The study revealed that NPAs, which were a modest ₹19 crore in FY19, have surged nearly 7,000 times over five years.
These now account for more than 17% of total lending in the P2P sector.
Despite its promise to address India’s low credit penetration of just 11%, compared to 75% in the US and 55% in China, the sector faces significant challenges.
P2P lending was introduced as an alternative to traditional banking, offering lenders attractive returns and borrowers competitive interest rates. However, borrowers, particularly rural households, often end up paying exorbitant interest rates exceeding 40%, comparable to credit card penalty rates.
RBI implements stricter regulations
The Reserve Bank of India (RBI) has stepped in to mitigate risks and safeguard stakeholders. Key regulatory measures include:
- Elimination of loan pooling: Platforms must facilitate direct lending, preventing fund pooling or loss guarantees.
- Enhanced transparency: Borrower details, such as credit scores, must be disclosed to help lenders make informed decisions.
- T+1 settlement cycle: Transactions must settle within one day via escrow accounts.
Caps on lending and borrowing
- Lenders are restricted to a ₹50-lakh limit across platforms.
- Borrowers can borrow up to ₹10-lakh in total, with a ₹50,000 cap per lender.
Industry faces growth challenges
Capitalmind’s analysis suggests that while these reforms aim to restore stability, they also pose challenges for growth.
The report emphasises that the sector is at a turning point. While regulatory measures by the RBI enhance transparency and accountability, collaboration with industry players will be crucial for its revival.
(Edited by : Shoma Bhattacharjee)
