News & Analysis

Lending Apps Ban: Govt. Loops in RBI

Following the recent ban on 94 digital lending apps earlier this week, the Home Ministry and the IT Ministry are set to discuss next steps with the RBI

The central ministries of Home Affairs and Information Technology are planning to loop in the Reserve Bank of India (RBI) to discuss a course of action following the government’s decision to block 94 digital lending apps this week. The ban on these lending apps came alongside the blocking of 138 others involved in betting. 

On its part the RBI had furnished the list of digital lending apps being used by regulated entities to the IT Ministry, which shared it with the respective app stores on the mobile phone ecosystems to seek the removal of those that did not figure in this list, according to statements made by the Finance Ministry in Parliament yesterday. 

Govt. seeks information from banned apps

Post the ban, founders of several lending platforms met officials of the Ministry of Electronics and Information Technology, according to a report published in the ET. It was reported that these representatives sought clarity on what prompted the blocking of their apps and requests sent to internet service providers to remove their websites. 

Meanwhile, the government told the Rajya Sabha that the action was initiated after the RBI shared a list of such lending apps. On its part the IT ministry requested the intermediaries to ensure that only those apps figuring in the RBI list be retained on PlayStore and AppStore. A decision to prepare such a list of legal apps was announced in September. 

Bans effected around three specific categories 

The ET report quoted unnamed sources in the administration to suggest that the removal of these apps were sought around three categories, of which the first included those that may have ultimate or partial ownership with Chinese entities. The second involved lending apps not regulated by the RBI that could store data on Chinese servers. The third was apps being run by enterprises against whom customer complaints were received over recovery harassment. 

Some of the lending apps that were affected by the ban includes the Ola-owned Avail Finance, IndiaBulls Home Loans, Faircent, LazyPay and Kissht. The reports said representatives of some of these apps were told to provide relevant information about ownership etc. to the government when sought. 

Probably, this is the discussion that the officials of the Home and IT Ministry are having with RBI to understand what sort of documentation would be required and what would be the next step once these are procured. Under normal circumstances, apps are banned by orders from the Home Ministry, but this time the RBI as a regulatory agency of fintech, was roped in.

 

Harassment by recovery agents top the list

Though it is not clearly known which of the apps were banned under what category, data says that as many as 12,903 complaints were received between April to November 2022 against banks and NBFCs around their digital lending apps and recovery agents, specifically around the harassment by the latter.

In fact, the RBI had set up a working group on digital lending in 2021 to ascertain all aspects of their activities and processes in a sector that has players from the regulated sector of finance as well as the unregulated one. The group had reported that a majority of complaints around lending apps came from entities not regulated by the RBI. 

Other major concerns identified by the report included mis-selling, breach of data privacy and exorbitant interest rates, lack of transparency and poor grievance redress mechanisms. This was in addition to the maximum number of complaints received by law enforcement agencies from unruly recovery agents. 

Last August, Google had removed 2000 credit disbursement apps between January and June for violating PlayStore policies as well as for not adhering to money-lending rules of the RBI. Six months earlier, it had removed 30 lending apps, including LazyPay, for not complying with the existing RBI regulations. 

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