Crackdown on illegal loan apps: RBI to make ‘whitelist’ of legal platforms


In a crackdown on illegal platforms, the Reserve Bank of India (RBI) will soon prepare a ‘whitelist’ of all legal applications (apps) that offer loans, and the Ministry of Electronics and Information Technology (MeitY) will ensure only these apps are hosted on app stores.

“The will monitor the ‘mule/rented’ accounts that may be used for money laundering and to review or cancel dormant NBFCs (non-banking financial companies) to avoid their misuse. The will ensure that registration of payment aggregators be completed within a timeframe and no unregistered payment aggregator be allowed to function after that,” the finance ministry said in a statement on Friday.

The decisions were taken in a meeting chaired by Finance Minister on Thursday.

The steps by the government come after illegal apps hosted on app stores have been found offering micro credit to the pandemic-hit people and low-income groups at exorbitant interest rates, along with hidden and processing charges, and resorting to predatory recovery practices.

Sitharaman also noted the possibility of money laundering, tax evasions, breach of data, and the misuse of unregulated payment aggregators, shell companies and defunct NBFCs for perpetrating such actions, the finance ministry said.

According to the proposed set of measures, the Ministry of Corporate Affairs (MCA) will identify shell companies that can be used for siphoning off funds, and deregister them to prevent their misuse. All government ministries and agencies have been asked to take appropriate steps, in their domain, to prevent illegal apps from operating.

“Steps should be taken to increase cyber awareness for customers, bank employees, law enforcement agencies and other stakeholders. All ministries/agencies to take all possible actions to prevent operations of such illegal apps,” the finance ministry said.

The meeting was also attended by Finance Secretary T V Somanathan, Economic Affairs Secretary Ajay Seth, Revenue Secretary Tarun Bajaj, Financial Services Secretary Sanjay Malhotra, MeitY Secretary Alkesh Kumar Sharma, and senior officials.

ALSO READ: Regulating digital lending

The RBI recently recommended that the Centre frame a law to ban unregulated lending activities to safeguard borrowers from predatory lending, harassment, and blackmail.

In its regulatory framework dated August 10, the RBI mandated that loan disbursements should only be carried out by entities regulated by it or those permitted under the law. It also said digital loans must be credited directly to the bank accounts of borrowers and not through any third party.

The RBI had received 2,562 complaints against apps from January 2020 to March 2021. The banking regulator had found over 600 unregistered lending apps available on Google Play Store.

The Enforcement Directorate last week raided six premises of online payment gateways such as Razorpay, Paytm and Cashfree in Bengaluru over alleged irregularities in instant app-based loans.

Last month, Google said it had removed over 2,000 personal loan apps — or more than half of the total apps in the category — from Play Store since the beginning of the year, mainly due to user safety concerns.

Sitharaman had informed Rajya Sabha last month that the government was taking action against dubious digital loan apps, including those originating from outside the country, and also against Indians who helped in setting them up. Without naming China, Sitharaman said most of the dubious apps were originating from one particular country.

“… The decision will save millions of innocent people falling prey to such unregistered, unregulated and illegal loan sharks as well as ensure that international fraudsters don’t get access to Indian payments systems, said Vishwas Patel, chairman of Payments Council of India, a representative body of regulated non-banking payment players.

Key decisions

  • RBI to monitor ‘mule/rented’ accounts that may be used for money laundering
  • To review/ cancel dormant NBFCs to avoid their misuse
  • Steps should be taken to increase cyber awareness for customers, bank employees and law enforcement agencies
  • All ministries/agencies to take all possible actions to prevent operations of illegal loan apps
  • To ensure that registration of payment aggregators is completed within a timeframe and no unregistered player is allowed to function after that

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