The certificate of registration CoR of five non-banking companies NBFCs was cancelled by the Indian RBI due to irregular lending practices, including charging excessive interest rates and harassing customers for loan recovery.
The five companies with CoR have been cancelled, are UMB Securities Ltd, Anashri Finvest Ltd, Chadha Ltd, Alexcy Tracon Pvt Ltd and Jhuria Financial Services Pvt Ltd.
The CoR of the abovementioned has been cancelled because of the violation of guidelines on outsourcing and fair practices code in their digital lending operations undertaken through third party apps, which was considered detrimental to public interest.
These were not complying with the extant regulations pertaining to charging excessive interest rates and being involved in harassment of customers in the recovery process.
In January of last year, the RBI had formed a working group to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players, so that an appropriate regulatory approach could be put in place.
This happened in the wake of a surge in digital lenders during the Pandemic. Consumers turned towards digital lending platforms and mobile apps to tide over difficult times as economic stress worsened due to the pandemic.
The Working Group suggested setting up a nodal agency that would verify the credentials of the digital lending apps. It had also called for the creation of a self-regulatory organization and bringing in legislation to prevent illegal lending activities.
The working group suggested that self-regulatory organizations have to be set up to cover the participants in the ecosystem. In the medium term, the working group suggested that the central government may introduce legislation to prevent illegal lending activities by introducing the Banning of Unregulated Lending Activities Act The RBI governor said that the central bank has received a lot of comments on the recommendations of the Working Group on Digital lending. The examination of those comments has been completed. We will hold internal deliberations and finalise the guidelines in the next one to two months, according to Shaktikanta Das.
Over 650 comments were received in response to the report by the Working Group on Digital lending, and a response has been framed on the basis of which will be put up for further discussions, according to Deputy Governor M Rajeshwar Rao. The regulator continues to receive complaints from customers who have fallen prey to frauds by digital lending apps and platforms, according to the governor.