RBI cancels registration of five NBFCs due to irregular Air India

The firms have been accused of charging excessive interest rates and harassing customers for loan recovery, among other things

The Reserve Bank of India (RBI) has cancelled the certificate of registration (CoR) of five non-banking finance companies (NBFCs) due to irregular lending practices, including charging excessive interest rates and harassment of customers for loan recovery.

The five NBFCs whose CoR have been cancelled are UMB Securities Ltd, Anashri Finvest Ltd, Chadha Finance Ltd, Alexcy Tracon Pvt Ltd, and Jhuria Financial Services Pvt Ltd.

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“The CoR of the abovementioned NBFCs have been cancelled on account of violation of RBI guidelines on outsourcing and fair practices code in their digital lending operations undertaken through third party apps which was considered detrimental to public interest”, the RBI said.

These NBFCs were also not complying with the extant regulations of RBI pertaining to charging excessive interest rates and were also involved in harassment of customers in the recovery process.

RBI had constituted a working group last year in January 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 came in the wake of a spurt of digital lenders during the pandemic. As economic stress due to the pandemic worsened, consumers had increasingly turned towards digital lending platforms and mobile apps for quick short-term loans to tide over difficult times.

The working group in their report had suggested setting up a nodal agency which will verify the technological 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 had suggested that self-regulatory organizations have to be set up covering the participants in the ecosystem. In the medium term, the working group had suggested that the central government may consider bringing in legislation to prevent illegal lending activities by introducing the ‘Banning of Unregulated Lending Activities Act’.

The RBI governor in the post April monetary policy meeting had stated the central bank has received a lot of comments on the recommendations by the working group on digital lending. “I believe the examination of those comments has been completed. We will hold internal deliberations now and finalise the guidelines in the next one to two months”, Shaktikanta Das had said.

Deputy Governor M Rajeshwar Rao had said that 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 those, which will be put up for further discussions. The governor also said that the regulator continues to receive multiple complaints from customers falling prey to frauds by digital lending apps and platforms.