RBI Slaps INR 42 Lakh Penalty On KrazyBee For Harassment Of Borrowers

Cracking down on digital loan sharks, the Reserve Bank of India (RBI) has slapped a penalty of INR 42.48 lakh on fintech startup KrazyBee for allegedly harassing customers. 

In an order issued on February 1, the central bank said that KrazyBee failed to rein in its collection agents which allegedly resorted to ‘harassment or intimidation of customers’ during debt collection.

“The Reserve Bank of India (RBI) has, by an order dated February 1, 2023, imposed a monetary penalty of INR 42.48 Lakh on Krazybee Services Private Limited, Bangalore for non-compliance with certain provisions of the directions issued by RBI…,” the statement said.

In legal terms, the NBFC was found flouting various norms related to ‘Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016’.

The penalties were slapped in exercise of powers under various provisions of the Reserve Bank of India Act, 1934.

After receiving multiple complaints from users, the RBI conducted a statutory inspection of the fintech player in March last year. Subsequently, the central bank found that the company failed to adhere to various guidelines and issued a show-cause notice to KrazyBee. 

“After considering the company’s reply to the notice, additional submissions made by it and oral submissions made during the personal hearing, the RBI came to the conclusion that the charge of non-compliance with the aforesaid RBI directions were substantiated and warranted imposition of monetary penalty, to the extent of non-compliance with the directions,” added the central bank. 

The action comes nearly six months after the central bank directed banks and other regulated entities to ensure their loan recovery agents do not harass people. Stipulating a time period between 8 AM and 7 PM for calling borrowers, the central bank told the fintech players to not make false and misleading representations to their borrowers.

The action also comes days after two people – a 23-year-old man and a 40-year-old man, in different parts of Andhra Pradesh died by suicide after being harrased by digital loan recovery agents in the last one month. 

This is not the first time that such loan apps have hit the headlines for the wrong reasons. After disbursing loans, many NBFCs allegedly harass borrowers to pay back the borrowed capital and even charge high rates of returns. Unable to pay, many take extreme steps such as death by suicide. Such reports have surfaced from different parts of the country and have seen a major uptick in the past couple of years.

Besides local players, involvement of Chinese nationals and entities was also found in such digital loan apps. 

In a bid to crackdown on such loan apps, Finance Minister Nirmala Sitharaman last year directed the RBI and the Ministry of Electronics and Information Technology (MeitY) to ensure only whitelisted loan apps are available for download on the Google Play Store and the Apple App Store.

The central bank was also tasked with reviewing and cancelling the licences of dormant NBFCs to avoid their misuse and to ensure no borrowers are harassed by RBI-regulated entities.