The Reserve Bank of India has canceled the Certificate of Registration (CoR) of 5 Non-Banking Financial Companies (NBFCs) as per a notification released by the Central Bank on Wednesday, May 25. As per RBI, these non-banks had been engaged in irregular lending activities. These NBFCs had been providing their services through app-based platforms.
In its circular, the RBI said that “the CoR of the (five) NBFCs have been canceled 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 Non-Banking Financial Companies include the following companies -
UMB Securities, Bengaluru
Anashri Finvest, Bengaluru
Chadha Finance, New Delhi
Alexcy Tracon, Kolkata
Jhuria Financial Services, Guwahati
The RBi said in a circular that “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.”
The Reserve Bank also added that “these companies were not complying with the extant regulations pertaining to charging of excessive interest and had resorted to undue harassment of customers for loan recovery purposes.”
In February, the Reserve Bank had also canceled the CoR issued to PC Financial, which carried out lending operations through an app called Cashbean. Moreover, 22 NBFCs which included companies such as BNP Paribas India Finance, Swiss Leasing and Finance, and Available Finance, had surrendered their certificates of registration to the RBI.
In 2020, there were claims of exorbitant interest rates and unfair practices being followed by certain app-based lenders.
These NBFCs whose Registration Certificates were canceled were carrying out their businesses under the following names - Fastapp Technologies, Datimes, Bullintech Finance, TGHY Trustrock, Mrupee, Kush Cash, Karna Loan, Mr Cash, FlyCash, Wifi Cash, Badabro, Aeritech, Finclub Technologies, MoNeed, MoMo, CashFish, Kredipe, RupeeLand and Rupee Master.
Following the allegations in 2020, the RBI had set up a working committee to present a report on the regulation of such apps. The suggestions by the Working Group included adding a verification process for the digital lending apps (DLAs) which would be conducted by a nodal agency and also incorporating dedicated legislation to keep a check on illegal digital lending practices.
These non-banking companies have been accused of harsh loan recovery practices which allegedly led to a rise in suicide cases among borrowers who were unable to repay the loan on time. It is important to note here that such quick loans became popular during the pandemic and these quick fund disbursing companies also sprung up rapidly during COVID. Indian smartphone users and customers facing financial crunch during the pandemic became an attractive and soft target for such digital lending apps.
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