What happened? The Reserve Bank of India (RBI) on May 25 cancelled the Certificate of Registration (CoR) issued to five Non-Banking Financial Companies (NBFCs) for improper lending practices.
Why? The registrations have been “cancelled on account of violation of RBI guidelines on outsourcing and Fair Practices Code in their digital lending operations undertaken through third-party apps which was considered detrimental to public interest. These companies were also not complying with the extant regulations pertaining to charging of excessive interest and had resorted to undue harassment of customers for loan recovery purposes,” RBI said in a press release.
- UMB Securities Limited: Lending through an app called Fastapp
- Anashri Finvest Limited: Lending through services and apps called Datimes, Bullintech Finance, TGHY Trustrock, Mrupee, Kush Cash, Karna Loan, Mr Cash, FlyCash, and More
- Chadha Finance Private Limited (now known as Chadha Finance Limited): Lending through an app called Wifi Cash
- Alexcy Tracon Pvt Ltd: Lending through an app called Badabro
- Jhuria Financial Services Private Limited: Lending through services and apps called Aeritech, Finclub Technologies, MoNeed, MoMo, CashFish, Kredipe, RupeeLand, and Rupee Master
Why does it matter? Over the last couple of years, hundreds of digital lending apps have popped up on Google’s Play Store targeting vulnerable Indian borrowers, charging them exorbitant interest rates, and resorting to extortion and blackmail tactics to collect payments. A quick Google search of some of the apps listed above will reveal a trove of consumer complaints alleging harassment and other improper recovery tactics. While illegal (unlicensed) apps are the major culprit, there are lenders with all the requisite permissions from RBI that also engage in the same tactics. RBI putting its foot down by banning these apps and cancelling the registrations of the companies behind them sends a strong message to others in the industry.
What next? The RBI is finalising its proposed guidelines on digital lending based on a report submitted by a working group last year; hopefully, these guidelines address some of the many concerns plaguing the digital lending space.
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