RBI Spots 600 Illegal Lending Apps Out Of 1,100 Available On Different App Stores

The Reserve Bank of India’s (RBI) Working Group on digital lending through online platforms and mobile apps set up in January this year said that 600 of the 1,100 lending apps on app stores are operating illegally. The working group submitted a report which revealed this information from the group’s research.

The report by the working group chaired by RBI executive director Jayant Kumar Dash has made recommendations mostly focused on enhancing customer protection and ensuring that the digital lending ecosystem remains safe and secure.

The working group adopted a four-pronged approach towards the report. These include:

1. Discussion with stakeholders where formal and informal inputs were sought from academicians, regulated entities, fintech companies, fintech advocacy groups, consumer interest groups, app stores etc. 
2. Representative survey’s sample data was collected from 76 scheduled commercial banks (SCBs) and 75 non-banking financial companies (NBFCs). According to the survey, digital lending constituted 75% and 10% of the assets of all SCBs and NBFCs engaged in digital lending.
3. A detailed review of extant regulatory and supervisory framework and industry practices followed by digital lending apps (DLAs), and ancillary functions performed by outsourcing agencies and fintech companies.
4. Review of global practices and internationally published literature on the subject, along with a study of global developments and approaches adopted in other countries.

The report further indicated that this trend will continue to spike, drawing more victims. It also pointed out the risk of such apps and websites collecting users’ personally identifiable information, financial data and other sensitive details that can be used to carry out identity theft and phishing attacks.

A cursory glance at an application store platform like Apple’s App Store or the Google Play Store will reveal many predatory lending apps that are available for Indian users. Many users have registered complaints against this app we found on the Google Play Store, but it is unsure whether it operates illegally.

Legality aside, this application and others like it seem to operate like shady online loan sharks. User complaints include the platform charging exorbitant interest rates, not registering settlements even after they are completed, and threatening to access users’ contact lists and sending messages to numbers on it. 

The RBI had established a portal for complaints against DLAs—Sachet, which has been receiving an increasing number of complaints. The portal received 2,562 complaints from January 2020 to March 2021.

The majority of these complaints were against apps that were promoted by non-banking or other entities that the RBI doesn’t regulate. Another large percentage of the complaints were against apps partnering with small NBFCs with an asset size of less than INR 1,000.

Most of the complaints were received from Maharashtra (572), Karnataka (394), Delhi-NCR (352) and Haryana (314).