Non-performing assets in peer-to-peer lending surged to Rs 1,163 crore in 2023-24: Report

All is not well within the peer-to-peer lending (P2P) industry, with a new report indicating that non-performing assets (NPAs) have "exploded" over the last few years.

Credit penetration in India has been low (11 per cent, compared with 55 per cent in China and 75 per cent in the USA) despite the rapid growth in the banking and non-banking finance sector in the country. In 2017, the Reserve Bank of India (RBI) introduced guidelines for P2P lending. The idea behind the emergence of such platforms was that linking borrowers to individuals willing to lend, generally through an online marketplace, would help expand credit, especially to the unbanked, and help deepen financial inclusion.

According to a RTI (right to information) response to Capitalmind Financial Services by the RBI, NPAs in P2P lending touched Rs 1,163 crore at the end of the financial year ended March 2024. This is a seven times jump compared with 2018-19 financial year. NPAs are estimated to be more than 17 per cent of the total lending in the sector.

The report pointed out that the NPAs in P2P lending have risen consistently from Rs 14.7 crore in 2018-19 to Rs 25.9 crore in 2019-20 to Rs 107.9 crore in 2020-21 to Rs 191.7 crore in 2021-22 and Rs 472.1 crore in 2022-23. Last year, they more than doubled to Rs 1,163 crore.

Earlier this year, the RBI had flagged regulatory violations by some NBFC P2P lending platforms. It then tightened norms for NBFC P2P lending platforms to improve compliance.

Capitalmind noted that for instance, lending is now strictly peer-to-peer, ensuring direct exposure between lenders and borrowers and platforms can no longer pool funds or offer guarantees for losses. Also, a T+1 settlement cycle has been mandated, whereby transactions have to be settled within a day and there are caps on lending and borrowing too.

While these measures aim to stabilise the sector, Capitalmind said they also present "hurdles" that could "stifle growth and innovation."

"The current crisis underscores the need for a balanced approach to regulation—one that protects stakeholders without stifling the industry’s potential to bridge India’s vast credit gap," it noted.

The RBI’s efforts to enforce discipline and transparency are steps in the right direction, but further collaboration between regulators and industry participants is essential, it added.