RBI crackdown on lending apps: 5 NBFC licences cancelled

In a major crackdown on digital lending platforms indulging in illegal practices, the central bank has cancelled the licences of five non-banking financial companies (NBFCs) citing “irregular lending practices”. The Reserve Bank of India (RBI) says the certificate of registration (CoR) issued to the five NBFCs stands cancelled on account of the violation of the RBI guidelines on outsourcing and fair practices code in their digital lending operations. These companies were undertaking operations through third-party apps, which was considered detrimental to the public interest, says the central bank.

The NBFCs whose licence has been cancelled are Bangalore-based UMB Securities Ltd, Bengaluru-based Anashri Finvest Ltd, New Delhi-based Chadha Finance Private Ltd, Kolkata-based Alexcy Tracon Pvt Ltd, and Guwahati-based Jhuria Financial Services Private Limited.

These companies carried operations under the names Fastapp Technologies Pvt Ltd, Datimes Pvt Ltd, Bullintech Finance Pvt Ltd, TGHY Trustrock Pvt Ltd, Mrupee, Kush Cash, Karna Loan, Mr Cash, FlyCash, Wifi Cash, Badabro, Aeritech, Finclub Technologies, MoNeed, MoMo, CashFish, Kredipe, RupeeLand and Rupee Master.

The RBI said the companies flouted its extant rules on the charging of excessive interest and resorted to "undue harassment" of customers for loan-recovery purposes.

"As such, the above companies shall not transact the business of a non-banking financial institution (NBFI), as defined in clause (a) of Section 45-I of the RBI Act, 1934," says the central bank.

The central bank's action comes in the backdrop of several reports of illegal lending practices, including harassment of borrowers, adopted by some of the small digital lending platforms. Many such digital apps are not even registered with the central bank.

In many cases, borrowers have been subjected to extreme harassment for not repaying the loans or delay in repayment. Some NBFCs have also been accused of getting access to borrowers' mobile phone data and threatening to use their morphed pictures. The RBI's seriousness on the issue also prompted Google to announce that it'll allow only central-bank-registered digital lending apps on its Play Store.

Amid the multiple reports of harassment by small digital lending platforms, the RBI on November 18, 2021, had released a report of its working group on digital lending. The RBI working group, in this report, had recommended that such digital lending apps should be subjected to a verification process by a nodal agency.

It had also sought the formation of a self-regulatory body covering the participants in the digital lending ecosystem and called for separate legislation to prevent illegal digital lending activities.

Among other suggestions put forward by the working group included the development of certain baseline technology standards and compliance with those standards as a pre-condition for offering digital lending solutions; data collection with the prior and explicit consent of borrowers with verifiable audit trails; the use of unsolicited commercial communications for digital loans; and the maintenance of a ‘negative list’ of lending service providers by the proposed self-regulatory body.