News & Analysis

Now, get RBI Approval Before Launching Loan Apps

Oversight agencies to act against illegal apps and MCA will identify and deregister shell companies that are likely misusing such apps

In what appears to be a series of stringent measures to crack down on illegal loan apps and reining in digital lending outside of banking channels, the RBI will soon draw up a list of such apps that would be eligible to get hosted on app stores. This is part of a series of measures that the government is reportedly taking to ensure that lending remains within the purview of banks.

Does this mean that the era of quick-fix fintech apps offering short-term loans to customers may come to an end soon? We are not sure, but read on to find out what the government is coming up with as a multi-pronged mechanism towards curtailing the free-for-all that they perceive in the highly lucrative lending market. 


Oversight and some regulations

Besides the RBI measures, the central government ministries and agencies tasked with overseeing these apps are in the process of creating a combined strategy to ensure that the digital lending agencies outside of regular banking channels have some sort of supervisory framework within which to operate. 

These ministries and the agencies associated with them will chalk out a plan to ensure that all possible action is taken in a concerted manner to curtail these illegal apps, says a government statement, adding that the Ministry of Corporate Affairs will identify and deregister shell companies to prevent misuse. 


The process has set in motion

The RBI has already started a process to create a wishlist of the loan apps even as the Ministry of Electronic and Information Technology (MeitY) is ensuring that only these get hosted on Google Playstore and Apple’s App Store. The RBI will also monitor mule and rented accounts being used for money laundering and review dormant NBFCs to prevent misuse. 

Most of these steps were initiated following a review meeting chaired by the Finance Minister Nirmala Sitharaman last week. Officials reportedly expressed concern over the instances of dubious apps offering micro credit to low income families at exorbitant interest rates, the statement said. 

It further noted that some of these providers were resorting to predatory recovery practices including intimidation and blackmail. The Minister also brought up the possibility of money being laundered and tax evasions plus data leaks in the existing process. This was a misuse of the payment aggregation business which remains unregulated in India now. 


How Sachet set the ball rolling 

On its part, the RBI had set up a working group on digital lending last year which identified as many as 600 such mobile apps operating in India. The central bank set up a portal called Sachet to seek complaints from users against such entities. Between January 2000 and March 2021, the portal received 2,600 such complaints.

Going forward, the RBI is aiming to ensure that registration of payment aggregators is completed within a timeframe and those without prior registration would be allowed to operate in the domain. The meeting last week saw officials from the ministries of IT, corporate affairs and finance come together to discuss possible solutions. 

In recent times, government agencies had cracked down on companies offering payment gateways including Paytm, Razorpay and Cashfree in Bengaluru over reports of irregularities in these app-based instant loan approvals by companies with controlling interests in China. However, some of these companies have already reported delinking from their Chinese investors while announcing that they are cooperating with the investigating agencies. 


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