Police Cracks Whip On Loan Apps, Arrests 17 People In 2 Cities; RBI Warns Against Loan Apps

Digital lending space in India has proliferated in the recent past across models including peer-to-peer, pay later, invoice financing, bank-led digital models, marketplaces, and more adopted by consumer and enterprise-facing businesses. The digital lending value increased from $33 billion in FY15 to $150 billion in FY20 and is expected to hit the $350-billion mark by FY23, according to Statista. Leading players in the market include Capital Float, Zest Money, Indifi, KredX, BharatPe, Lendingkart, Paisabazaar, and mo

Covid-19 has expedited the shift to these “seemingly” hassle-free loan apps. However there is a flipside to this proliferation as there are increasing concerns and complaints about these loan apps. Recently a techie succumbed to the pressure of online lenders and committed suicide.

RBI To The Rescue:-

On Wednesday, The Reserve Bank of India cautioned small businesses and individuals against taking loans through unauthorized digital lending apps and urged the borrowers verify the antecedents of the lenders offering loans online or through mobile apps.

The central bank said in a statement “falling prey to growing number of unauthorized digital lending platforms/Mobile Apps on promises of getting loans in quick and hassle-free manner”.

Accusations about some of the online lending platforms with respect to high-interest rates, lack of transparency in methods to calculate interest, unauthorized use of user data, and more have been reported by people and hence RBI said that NBFCs and banks need to state the names of online platforms they are working with and said that “Legitimate public lending activities can be undertaken by Banks, NBFCs, registered with RBI and other entities who are regulated by the State Governments under statutory provisions, such as the money lending acts of the concerned states.”

It said in the statement. “Reserve Bank has also mandated that digital lending platforms which are used on behalf of Banks and NBFCs should disclose name of the Bank(s) or NBFC(s) upfront to the customers”.

RBI had also asked lending apps to issue a sanction letter to the borrower on the letter head of the bank/ NBFC concerned before the execution of the loan agreement.

Recent Instances Of Loan Frauds:-

Among recent instances related to online loan frauds, Hyderabad police had arrested 11 persons from Delhi, Gurgaon while the Hyderabad police arrested six others in Hyderabad. In a press note on Tuesday, Hyderabad police said it registered nearly 16 FIRs related to loans by alleged unauthorized loan apps and harassment of the victims by the companies running these apps.

The Hyderabad Police has frozen 75 bank accounts that hold Rs 423 crore in connection with a multi-crore money lending scam.

According to Telangana DGP, at least 60 such loan apps available on Google Play Store were not registered or recognized by the Reserve Bank of India as an NBFC which makes their operation illegal.