P2P industry: When will RBI walk the talk?

The regulator issued show cause notices to a few P2P platforms for certain practices. Let's see how they defend themselves and how the regulator reacts

- TAMAL BANDYOPADHYAY

The following incident succinctly sums up what's happening on India's peer-topeer (P2P) lending landscape. In May, Mr A invested ₹10,000 to be lent to borrowers on a P2P platform, which we'll call Platform B. I'm not naming either the investor/lender or the P2P platform involved. Mr A transferred themoney on May 3, and the credit reflected on the P2P platform on May 9. He had chosen the "manual" option to invest. There is also an "auto" investment option. In the manual investment process, the investor picks the borrowers, and the platform follows the investor's instructions. In auto investing, the platform checks the credit score and cash flow (whether the borrower is a salaried person or not) of prospective borrowers, among other credit appraisal parameters.

On May 16, Mr A checked the website of the platform with the intention of choosing borrowers. However, he found that no money was available for investment as the ₹10,000 had already been invested in 165 loans, with an average loan size of ₹60.60.

This was okay since this is the norm to diversify risk. What was not fine with Mr A was that 19 borrowers, or 11.5 per cent of them, had not paid the instalment for loans already taken from him for at least 30 days. This is the first stage of default. If a borrower does not service a loan for 90 days, the loan becomes a non-performing asset (NPA). The question is: If someone invests on May 9, how can the money be lent to borrowers in April or earlier, some of whom have already started defaulting on loan repayments? By mid-June, the number of Mr A's borrowers dropped to 136, but the number of loans not serviced for 30 days rose to 34. On top of that, there were seven NPAs. By mid-July, the number of borrowers further dropped to 85. This time, 24 loans, or more than one-fourth of the loans disbursed, experienced non-payment for 30 days, and six loans were NPAs.