‘You live by the sword, you die by the sword’: Nithin Kamath says regulations are like a ‘double-edged sword’  

Zerodha CEO Nithin Kamath feels regulations are like a double-edged sword and cited peer-to-peer (P2P) lending as an example. The recent P2P regulations have meant that all platforms have to make wholesale changes to their business models, he added. 

“Here’s a saying, “You live by the sword, you die by the sword”. For regulated business, it’s “you live by regulations and die by regulations”. 

"Regulations are like a double-edged sword. They can be a moat for the business, but at the same time, they can make your business model invalid overnight. Regulations are easier when explicit (SEBI) than implicit (RBI), but I guess it is because RBI has to regulate a wide variety of intermediaries,” he wrote in a post on X (formally twitter). 

“What happened with peer-to-peer (P2P) lending is an example. The recent P2P regulations have meant that all platforms have to make wholesale changes to their business models. Platforms can’t hold money indefinitely, they can’t facilitate lending to multiple borrowers at the same time, hint at returns, etc,” Kamath wrote, while highlighting a report on ‘Is peer-to-peer lending set for a crash?’.  

All players in the space will have to go back to the drawing board, added the Zerodha CEO. 

Report highlights P2P risks

Bad loans in the peer-to-peer (P2P) lending industry more than doubled in financial year 2024 (FY24) to Rs 1,163 crore from Rs 472.1 crore in FY23, according to a Capitalmind report. 

Non-performing assets (NPAs), as such loans are officially called, were a modest Rs 14.7 crore at the end of FY19 when P2P lending was in its nascent stage, according to Capitalmind Financial report released on December 16, which accessed data from the Reserve Bank of India (RBI) through a right to information application. 

NPAs comprise more than 17 percent of the total lending in the sector, the report said. The data on rising NPAs comes after the RBI flagged regulatory violations by the P2P lending platforms of some non-banking financial companies (NBFCs). 

RBI tightened its guidelines for P2P lending in August, saying that some platforms were promoting such loans as investment products, offering liquidity options, and functioning as deposit-takers and lenders, rather than merely acting as intermediaries. 

Revised guidelines mandated that funds transferred into the lenders’ and borrowers’ escrow accounts should not remain there for more than T+1 days, where T refers to the date on which the funds are received. 

In November, companies said that they were conducting pilots or had completed the implementation of the T+1 guideline ahead of the November 14 deadline, which mandated firms to clear funds in escrow accounts within one day.