Non-Performing Assets of Peer-to-Peer Lenders More Than Double to Rs 1,163 Crore in FY24

Non-performing assets (NPAs) in the peer-to-peer (P2P) lending sector have surged, reaching Rs 1,163 crore by the end of FY24. This marks a significant increase from Rs 472.1 crore at the close of FY23, according to a report by Capitalmind Financial Services. The data, sourced from an RBI response to an RTI application, highlights the growing challenges within this sector.

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The P2P lending model involves raising funds from investors to lend to individuals or entities. Currently, NPAs represent 17% of total lending by these financiers. This rise in sour loans coincides with the introduction of stringent regulations aimed at addressing sectoral concerns. These new rules have been described as a severe setback by P2P entities.

Regulatory Measures and Their Impact

Capitalmind explained that the Reserve Bank of India's (RBI) measures focus on eliminating loan pooling. This ensures direct lender-borrower exposure and mandates platforms to provide detailed borrower information, including credit scores. Such transparency is intended to assist lenders in making informed decisions.

Furthermore, transactions must now be settled within one day using escrow accounts. Lending is capped at Rs 50 lakh per lender across platforms, while borrowing is limited to Rs 10 lakh with a Rs 50,000 cap for a single lender. These measures aim to stabilise the sector but also pose challenges that might hinder growth and innovation.

Balancing Regulation and Growth

The current situation highlights the necessity for balanced regulation that safeguards stakeholders without limiting the industry's potential. Capitalmind emphasised that such an approach is crucial for bridging India's significant credit gap. While regulatory measures are essential for stability, they should not impede the sector's ability to innovate and expand.

The P2P lending industry faces a pivotal moment as it navigates these regulatory changes. Ensuring both protection and growth will be key to its future success in addressing India's credit needs effectively.