As the Reserve Bank of India (RBI) expresses concerns over liquid funds and instant withdrawal products, peer-to-peer (P2P) lending platforms are redirecting their attention towards fixed-tenure offerings. A significant portion of customers has transitioned from liquid funds to fixed-tenure products in recent months, resulting in minimal impact on platform businesses.
Several leading P2P platforms have announced plans to discontinue instant withdrawal products by March 31, signalling a shift in strategy. Following an industry-wide decision, platforms have halted the provision of instant withdrawal options for new lenders. Instead, they are actively migrating existing customers to fixed-tenure products.
Regulatory discomfort
This strategic adjustment by P2P lending platforms comes amidst regulatory discomfort surrounding certain industry practices. The RBI recently criticised instant withdrawal products for breaching licensing conditions, cautioning against schemes resembling fixed deposits where users can earn interest and withdraw funds prematurely.
Regulatory directives outlined by the RBI for the P2P lending sector since 2017, with revisions in 2019, have prompted platforms to recalibrate their operations. Compliance with regulations remains a focal point as platforms seek clarity on key issues like auto-investing mechanisms, reinvestment policies, and the possibility of selling underlying loans in the secondary market.
| Industry norms dictate that a lender cannot invest more than Rs 50 lakh on a platform, with a maximum investment limit of Rs 50,000 per borrower. The maximum maturity duration for loans is capped at 36 months, with an average duration of around 12 months. |
Despite the temporary pause on instant withdrawal products, the P2P lending industry continues its rapid growth trajectory. With liquid schemes accounting for approximately 25-30% of total disbursals, platforms anticipate minimal impact on overall business performance.
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