RBI Annuls Registration Certificates Of NBFCs Kudos Finance & Credit Gate

Close on the heels of the ban on Chinese lending apps, the Reserve Bank of India (RBI) has now cancelled the registration of two non-banking financial companies (NBFCs) for allegedly harassing borrowers.

In an order issued on February 13, the central bank cancelled the Certificate of Registration (CoR) of Kudos Finance and Credit Gate. 

Citing violation of the RBI guidelines on Outsourcing and Fair Practices Code, the central bank noted that the digital lending operations undertaken by these two NBFCs, via third-party apps, were detrimental to the public interest. 

“These companies were also not complying with the extant regulations pertaining to charging of excessive interest and had resorted to undue harassment of customers for loan recovery purposes,” the RBI said in a statement.

The orders barring the two entities were issued by the apex bank under the Reserve Bank of India Act, 1934.

Mumbai-based Credit Gate received its CoR back in 2018 and offered digital lending services through two entities – Digipeergo Tech and Sky Line Innovation. 

On the other hand, Pune-based Kudos Finance received its certification in 2010 and operated digital lending services through the Flashcash lending app as well as Panyun Technologies and Bornbrave Technologies.

A Habitual Offender?

The crackdown comes six months after the name of Kudos Finance emerged in a money laundering case. In July last year, the ED had attached funds worth INR 940 Cr parked in the accounts of 155 banks, which belonged to multiple fintech firms and NBFCs. One of the names on the list was Kudos FInance. 

Back then, the investigation agency had found that these NBFCs would allegedly sign partnerships with ‘Chinese and Hong Kong persons’ to provide illegal instant personal loans.

The probe also revealed that these NBFCs would claim that they hired these fintech companies for customer discovery, however, would use the licence of these NBFC entities to conduct large-scale lending. Subsequently, it also emerged that the foreign nationals would take a call on all major decisions, including interest rates, and processing fee, among others. 

Eventually, a case under the Prevention of Money Laundering Act, 2002, was registered and the cancellation of the licences of the two players came six months after the allegations first surfaced. 

Meanwhile, this adds to the government’s growing crackdown on digital lending apps. Last week, the Centre banned 94 digital lending apps with links to China or Chinese entities, including the clones of Indian players. The aftermath saw many homegrown lending startups also face the ban. However, after much deliberation, the order was finally revoked. 

The predatory debt collection practices adopted by these lending platforms have allegedly forced many Indians to die by suicide or shell out exorbitant amounts of interest in some cases, as per RBI’s estimate. This has also led to a long line of complaints from the general public, alleging physical harassment and intimidation tactics by these digital loan sharks.

The ban also came on the same day as Union minister Ashwini Vaishnaw termed the government’s decision to ban Chinese lending apps a matter of national security.