Peer-to-peer (P2P) lending platforms in India are grappling with significant challenges following the Reserve Bank of India’s (RBI) recent tightening of regulations. The new guidelines, which came into effect on August 16, have led to a sharp decline in customer onboarding, with industry estimates indicating a drop from 250,000-300,000 new users per month to just 3,000-4,000.
The RBI’s revised regulations prohibit P2P platforms from assuming any credit risk, offering credit enhancements, or providing guarantees. Additionally, these platforms are now barred from promoting P2P lending as an investment product with features like tenure-linked assured returns or liquidity options. The stringent rules have made it increasingly difficult for many platforms to operate under the new framework, with some large players considering winding down their operations altogether.
One of the most contentious aspects of the new regulations is the introduction of a T+1 settlement cycle, which requires funds in the escrow accounts of lenders and borrowers to be cleared within a single day. Industry members have expressed concerns that this requirement is overly restrictive and have requested the RBI to consider a more gradual implementation, such as starting with a T+10 settlement cycle.
Customer acquisition
The regulatory changes have also caused a slowdown in customer acquisition for platforms that have not completely halted onboarding. The lack of a secondary market for retail lenders, combined with the inability to offer liquidity options, has further complicated the situation for them. Many in the industry are seeking clarity from the RBI on whether the new provisions will apply retrospectively or prospectively and are advocating for adjustments that would allow for more sustainable operations.
With the P2P lending sector already seeing a reduction in overall transactions and the potential shrinkage of portfolios, the future of these platforms remains uncertain. The industry is closely watching for any further guidance or relaxation from the regulator that could help mitigate the impact of these stringent measures.
