In what appears to be a series of tough measures to crack down on illegal lending apps and limit digital lending outside of banking channels, the RBI will soon compile a list of such apps that could be hosted on app stores. This is part of a series of measures the government has reportedly taken to ensure lending remains with the banks.
Does this mean that the era of fast fintech apps offering short-term loans to customers may soon be coming to an end? We’re not sure, but read on to find out what the government is proposing as a multi-pronged mechanism to reduce the freedom for all they perceive in the highly lucrative loan market.
Supervision and certain regulations
In addition to RBI measures, central government departments and agencies responsible for overseeing these applications are creating a combined strategy to ensure that digital lending agencies outside of regular banking channels have some sort of oversight framework in which operate.
These ministries and their associated agencies will develop a plan to ensure that all possible measures are taken in a concerted manner to reduce these illegal applications, a government statement said, adding that the Ministry of Corporate Affairs will identify and deregister companies. screens to prevent misuse.
The process has started
The RBI has already started a process to create a wish list of lending apps even as the Ministry of Electronic and Information Technology (MeitY) ensures that only these are hosted on Google Playstore and the App Apple store. The RBI will also monitor mule and leased accounts used for money laundering and review dormant NBFCs to prevent abuse.
Most of these measures were initiated following a review meeting chaired by Finance Minister Nirmala Sitharaman last week. Officials reportedly expressed concern over instances of dodgy apps offering microloans to low-income families at exorbitant interest rates, the statement said.
He further noted that some of these vendors used predatory clawback practices, including intimidation and blackmail. The Minister also raised the possibility of money laundering and tax evasion, as well as data leaks in the existing process. This was a misuse of the payments aggregation business which remains unregulated in India at present.
How Sachet got the ball rolling
For its part, the RBI had set up a digital lending task force last year which identified up to 600 such mobile apps operating in India. The central bank has set up a portal called Sachet to collect user complaints against these entities. Between January 2000 and March 2021, the portal received 2,600 such complaints.
Going forward, the RBI aims to ensure that the registration of payment aggregators is completed within a deadline and those without prior registration would be allowed to operate in the domain. Last week’s meeting brought together officials from the ministries of IT, general affairs and finance to discuss possible solutions.
In recent times, government agencies have cracked down on companies offering payment gateways including Paytm, Razorpay and Cashfree in Bangalore following reports of irregularities in such app-based instant loan approvals by companies holding majority interests in China. However, some of these companies have already signaled their disconnect with their Chinese investors while announcing that they are cooperating with investigative agencies.