Illegal loan apps: FM orders action; RBI to make ‘white list’

The decision was taken in a meeting chaired by Finance Minister Nirmala Sitharaman on Thursday, which discussed various issues related to illegal loan apps. There have been rising instances of fraud by digital lending apps, which are not registered with the central bank and operate on their own.

“The Finance Minister expressed concern on increasing instances of illegal loan apps offering loans/ micro credits, especially to vulnerable & low-income group people at exorbitantly high interest rates and processing/hidden charges, and predatory recovery practices involving blackmailing, criminal intimidation, etc,” a Finance Ministry statement said Friday.

“(She) also noted the possibility of money-laundering, tax evasions, breach/privacy of data and misuse of unregulated payment aggregators, shell companies, defunct NBFCs, etc, for perpetrating such actions,” it added.

It was also decided in the meeting that the central bank will ensure registration of payment aggregators within a timeframe and no unregistered payment aggregator will be allowed to function after that. The Corporate Affairs Ministry will identify shell companies and deregister them to prevent their misuse.

All ministries and agencies have been directed to take all possible actions to prevent operations of such apps. Steps would be taken to increase cyber awareness for customers, bank employees, law enforcement agencies and other stakeholders, the Finance Ministry said. The meeting was attended by the secretaries in the finance and electronics & IT ministries, and an RBI deputy governor.

Last Saturday, the Enforcement Directorate (ED) raided several premises in Bengaluru, including those of Razorpay, Cashfree Payments, Paytm Payment Service and also entities controlled or operated by Chinese individuals. The crackdown, coming in the wake of complaints against Chinese loan apps, were carried out under the provisions of the Prevention of Money Laundering Act (PMLA), 2002.

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The ED is probing cases of NBFCs allegedly indulging in predatory lending practices in violation of RBI guidelines. As per the agency, after it began its probe, many of these companies shut shop and diverted funds through fintech companies to buy crypto assets which were then laundered abroad. In this connection, the ED had searched premises associated with crypto exchange WazirX and frozen Rs 64 crore in its accounts.

The searches revealed that some entities — controlled and operated by Chinese individuals — have been using forged documents of Indians to appoint them dummy directors of those entities. The ED believes these entities are “generating proceeds of crime” and has concluded that these entities were conducting “suspected/illegal business” through various merchant IDs or accounts held either with payment gateways or even banks.

The RBI has been concerned about the proliferation of Chinese loan apps, many of which started operations during the pandemic, targeting the vulnerable and the unemployed. These digital lending platforms charge very high lending rates and then resort to strong-arm tactics to recover the money.