P2P Lending Faces Regulatory Overhaul Amid NPA Surge

Non-performing assets in peer-to-peer lending have more than doubled, reaching Rs 1,163 crore by FY24, highlighting significant stress in the sector. RBI's new regulations aim to bring transparency and stability but are challenging growth and innovation. Capitalmind Financial Services suggests a balanced regulatory approach.

Non-performing assets (NPAs) in the peer-to-peer (P2P) lending sector have surged more than double to reach Rs 1,163 crore by the conclusion of FY24, according to a report released Monday.

P2P lenders, who source funds from investors to extend loans to individuals or entities, have witnessed a significant increase from Rs 472.1 crore at the end of FY23, as reported by Capitalmind Financial Services, citing data from the Reserve Bank of India (RBI) released under a right to information (RTI) request.

The report estimates that NPAs now represent 17% of the total lending by these financiers, a troubling figure exacerbated by recent stringent regulatory requirements meant to ensure transparency and curb risks in the sector.

Capitalmind highlights that the RBI's measures, which include dissolving loan pooling to ensure direct interactions between lenders and borrowers, mandate the disclosure of detailed borrower information such as credit scores to facilitate informed lending. Additionally, transactions must be wrapped up within a day via escrow accounts, with caps set at Rs 50 lakh for lenders and Rs 10 lakh per borrower.

While intended to stabilize the sector, these reforms pose challenges to growth and innovation, leading to calls for a balanced regulatory framework that protects stakeholders without hindering the industry's potential to narrow India's substantial credit gap.

(With inputs from agencies.)