Digital lending fraud: RBI cautions small businesses, individuals against unauthorised loan apps

Credit and Finance for MSMEs: The Reserve Bank of India on Wednesday cautioned small businesses and individuals against taking loans through unauthorised digital lending apps. The central bank issued notification following reports with respect to such borrowers “falling prey to growing number of unauthorised digital lending platforms/Mobile Apps on promises of getting loans in quick and hassle-free manner,” it said in a statement. The bank also urged borrowers to verify the antecedents of the lenders offering loans online or through mobile apps. Digital lending space in India has proliferated in the recent past across models including peer-to-peer, pay later, invoice financing, bank-led digital models, marketplaces, and more adopted by consumer and enterprise-facing businesses.

The RBI had in June this year, following complaints against online lending platforms with respect to high-interest rates, lack of transparency in methods to calculate interest, unauthorized use of user data, and more, had said that NBFCs and banks need to state the names of online platforms they are working with. “Reserve Bank has also mandated that digital lending platforms which are used on behalf of Banks and NBFCs should disclose name of the Bank(s) or NBFC(s) upfront to the customers,” it said in the statement. The central bank had also asked lending apps to issue a sanction letter to the borrower on the letter head of the bank/ NBFC concerned before the execution of the loan agreement.

Also read: Delayed payments: MSMEs see 74% jump in rejected applications involving this much amount since March

“Legitimate public lending activities can be undertaken by Banks, NBFCs, registered with RBI and other entities who are regulated by the State Governments under statutory provisions, such as the money lending acts of the concerned states,” said RBI. Among recent instances related to online loan frauds, Hyderabad police had arrested 11 persons from Delhi, Gurgaon while the Cyberabad police arrested six others in Hyderabad. In a press note on Tuesday, Hyderabad police said it registered nearly 16 FIRs related to loans by alleged unauthorized loan apps and harassment of the victims by the companies running these apps.

India’s digital lending market has seen a significant rise over the years. The digital lending value increased from $33 billion in FY15 to $150 billion in FY20 and is expected to hit the $350-billion mark by FY23, according to Statista. Among the leading players in the market include Capital Float, Zest Money, Indifi, KredX, BharatPe, Lendingkart, Paisabazaar, and more.