Sector’s Assets Shrink from ₹10,000 Cr to Below ₹3,000 Cr in a Year
Industry Faces Uncertain Future Amid Tightened Regulations
24 March 2025, Bengaluru: The peer-to-peer (P2P) lending industry in India has hit a major slowdown, with leading players struggling to adapt after the Reserve Bank of India (RBI) imposed stringent regulations last year. Once seen as a promising alternative lending model, the sector now faces an uncertain future. The total assets under management (AUM) in the industry have fallen dramatically from around ₹10,000 crore to below ₹3,000 crore within a year, signaling a sharp contraction in operations.
What is P2P Lending?
P2P lending platforms enable individuals to lend money directly to borrowers without involving traditional financial institutions like banks. These platforms gained popularity due to their promise of high returns for investors and easy access to credit for borrowers, particularly those underserved by conventional banks. However, concerns over risk management, default rates, and regulatory compliance led authorities to impose tighter restrictions.
Regulatory Crackdown and Market Impact
The slowdown began when the RBI introduced stricter rules on P2P lending in 2023, subjecting platforms to increased oversight. The central bank prohibited P2P platforms from guaranteeing fixed returns or providing credit enhancement services. Additionally, the RBI fined major players such as Liquiloans and LenDen Club ₹1 crore each for regulatory violations in August 2023.
As a result, many P2P lending companies have had to significantly alter their business models. Liquiloans, which once operated as an independent lender, now collaborates with Cred. LenDen Club, a significant player in the space, has halted its lending activities. Similarly, BharatPe has also stopped its P2P lending business, and Lenbox has transitioned toward wealth management services under the brand Per Annum.
The impact of these regulatory measures has been severe, leaving most major platforms in a financial crunch. “The industry is trying to engage with the RBI to seek more clarity on compliance requirements, but there has been little progress so far,” said the founder of a prominent P2P lending startup.
Investor Confidence Takes a Hit
The P2P lending model had been an attractive investment avenue, particularly for those seeking higher returns than traditional fixed deposits or mutual funds. However, with increased regulatory uncertainty, investor confidence has declined, leading to a liquidity crisis in the sector.
P2P platforms had marketed themselves as a reliable alternative for lenders looking to earn better interest rates. However, the regulatory pushback has made it difficult for platforms to assure stability. “The uncertainty in the sector has raised concerns about fund security, making it harder to attract investors,” noted an industry expert.
The Future of P2P Lending in India
With the market shrinking rapidly, the future of P2P lending in India is now at a crossroads. While some platforms are adapting by shifting to alternative financial services, others are struggling to comply with the evolving regulatory landscape.
The RBI has granted investors time until August 2024 to withdraw funds from P2P platforms, but industry analysts warn that recovery will be slow. Many platforms are also struggling to implement the T+1 settlement guidelines, which require transactions to be settled within a day. This regulation, aimed at ensuring faster settlements, has further strained the financial capabilities of P2P startups.
Despite these challenges, some industry experts believe that a regulated and streamlined P2P lending ecosystem could still thrive in India. “If regulatory clarity improves and platforms focus on responsible lending practices, P2P lending can continue to be a viable alternative to traditional banking,” said a fintech consultant.
Conclusion
The P2P lending sector, once a booming industry, is now navigating turbulent waters. While the regulatory overhaul has increased scrutiny, it has also pushed platforms to evolve and adopt more sustainable business practices. Whether these changes will lead to a revival of the sector or signal its decline remains to be seen. For now, investors and borrowers alike are closely watching how the industry adapts to the new regulatory environment.
Source: Pratik Bhakta, The Economic Times
