Drive against digital frauds: RBI to crack down on illegal loan apps | The Financial Express

Drive against digital frauds: RBI to crack down on illegal loan apps

To weed out unregistered payment aggregators

Drive against digital frauds: RBI to crack down on illegal loan apps
The corporate affairs ministry will identify shell companies and de-register them to prevent their misuse.

Clamping down on illegal loan apps proliferating outside the regular banking channels, the government has asked the Reserve Bank of India (RBI) to prepare a “white list” of legal apps to be permitted in app stores. The central bank will also monitor money-laundering through mule/rented accounts, take proactive action in cancelling dormant NBFC licences and remove unregistered payment aggregators within a time frame.

The decision was taken in a meeting chaired by finance minister Nirmala Sitharaman here 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.

Also Read: Google removes 2,000 loan apps from India Play Store

“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,” the finance ministry said in a statement on Friday. “Sitharaman 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 de-register 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.

Also Read: Borrowing from loan apps – Know how to identify genuine fintech lenders

The meeting was attended by the secretaries in the finance and electronics & IT ministries, and an RBI deputy governor.

On 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 comes in the wake of complaints against Chinese loan apps and were carried out under the provisions of the Prevention of Money Laundering Act (PMLA), 2002.

The searches revealed that some entities, which are controlled and operated by Chinese individuals, have been using forged documents of Indians to appoint them dummy directors of those entities. The investigative agency believes these entities are “generating proceeds of crime”. It has also concluded that these entities were conducting “their 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 charged very high lending rates and resorted to strong-arm tactics to recover the money. Customers who took loans from these lenders did so because the process was simple, involving little paperwork. For the lenders, such methods of acquiring customers were inexpensive.

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