Part 4: Risk Analysis — NPA, Defaults, and Capital Erosion

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What Does NPA Mean in P2P Lending?

In traditional banking, a loan is classified as a Non-Performing Asset (NPA) when the borrower fails to make payments for 90 days or more. P2P platforms generally follow a similar convention:

• 0-30 days overdue: “Delayed” — not yet NPA.
• 31-90 days overdue: “Delinquent” — the platform sends collection reminders.
• 90+ days overdue: Classified as NPA — the loan is considered defaulted.

Gross NPA vs Net NPA

• Gross NPA: The total value of all loans that are 90+ days overdue, as a percentage of total loans.
• Net NPA: Gross NPA minus any provisions or recoveries already made.

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Real NPA Data from Indian P2P Platforms (2025-2026)

Platform	Gross NPA (Reported)	What It Means
LenDenClub	~3.62%	~₹362 out of every ₹10,000 lent is in default
Lendbox	~9.75%	~₹975 out of every ₹10,000 lent is in default
Faircent	~4-6%	~₹400-600 out of every ₹10,000 lent is in default
LiquiLoans	~3-5%	~₹300-500 out of every ₹10,000 lent is in default

Important Caveat

These are self-reported figures. There is no independent third-party audit mandated by the RBI for P2P NPA disclosure. The actual default rates experienced by individual investors can vary significantly based on their specific loan portfolio, risk category selection, and tenure.

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The Mathematics of Default

Here’s a realistic scenario showing how defaults erode your returns:

Scenario: ₹1,00,000 invested across 200 borrowers at 14% average interest

Outcome	Amount
Gross Interest Earned	₹14,000
Platform Fees (2%)	-₹2,000
If 5% of loans default (₹5,000 lost)	-₹5,000
Net Return	₹7,000 (7% actual return)
If 10% of loans default (₹10,000 lost)	-₹10,000
Net Return	₹2,000 (2% actual return)
If 15% of loans default	-₹15,000
Net Return	-₹3,000 (Capital Erosion!)

Key Insight: At a 15% default rate, you are not just earning zero — you are losing your principal. This is why NPA data is the single most important metric in P2P lending.

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What Happens When a Borrower Defaults?

1. Automated Reminders: SMS, email, and app notifications (0-30 days).
2. Collection Calls: The platform’s internal collection team contacts the borrower (30-90 days).
3. Third-Party Collection Agencies: External agencies take over recovery efforts (90-180 days).
4. Legal Action: The platform may file a case in the civil court or initiate arbitration. However, the cost of legal recovery for a ₹50,000 loan often exceeds the loan amount itself.
5. Write-Off: After 180-365 days of non-recovery, the loan is typically written off. Your capital is gone.

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The 5 Types of Risk in P2P Lending

1. Credit Risk (Default Risk)

The borrower stops paying. This is the primary risk and the one that destroys returns.

2. Platform Risk

The P2P platform itself goes bankrupt or loses its RBI license. Your money is in an escrow account (not in the platform’s own account), but operational disruption can delay or prevent recovery.

3. Liquidity Risk

Post-August 2024 rules, you cannot exit your investment before the loan matures. If you need emergency funds, they are locked.

4. Concentration Risk

If you lend large amounts to a small number of borrowers and one defaults, the loss is disproportionate.

5. Regulatory Risk

The RBI can change rules at any time (as it did in August 2024), potentially impacting your existing investments.

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Next: Part 5: How P2P Lending Income Is Taxed in India