During the meeting, FM Sitharaman noted the possibility of money laundering, tax evasion and misuse of defunct NBFCs and shell companies
It was decided that the RBI will create a ‘whitelist’ of all the legal loan apps and MeitY will ensure that only these whitelisted apps are available for use
The RBI will monitor the ‘mule/rented’ accounts that may be used for money laundering and review or cancel dormant NBFCs to avoid their misuse
Union Finance Minister Nirmala Sitharaman on Thursday (September 8) chaired a high-level meeting to discuss issues related to the operations of illegal loan apps in the country.
The meeting was attended by the Finance Secretary; Secretary, Economic Affairs; Secretary, Revenue, & Corporate Affairs (Additional Charge); Secretary, Financial Services; Secretary, Electronics & Information Technology; RBI Deputy Governor and Executive Director, the Ministry of Finance said in a statement on Friday (September 9)
During the meeting, the finance minister expressed concern about the practices of the illegal loan apps. She noted that these apps offer microloans and credit to low-income groups at extortionate interest rates and processing fees, and employ predatory recovery practices involving blackmailing and criminal intimidation.
During the meeting, it was decided that the ministries and agencies will take various actions to curb the operations of these illegal loan apps.
Firstly, the Reserve Bank of India (RBI) will create a ‘whitelist’ of all the legal apps and the Ministry of Electronics and Information Technology (MeitY) will ensure that only the whitelisted apps are available on the Google Play Store and the Apple App Store.
Besides, the RBI will monitor the ‘mule/rented’ accounts that may be used for money laundering and review or cancel dormant NBFCs to avoid their misuse.
Thirdly, the RBI will ensure that the registration of payment aggregators is completed within a given timeframe. No unregistered payment aggregator will be allowed to function after it.
It was also decided that the Ministry of Corporate Affairs (MCA) will identify shell companies and deregister them to prevent their misuse.
The government will also take steps to increase cyber awareness among customers, bank employees, law enforcement agencies and other stakeholders regarding illegal loan apps.
The meeting took place days after the Enforcement Directorate (ED) searched the premises of six companies, including Paytm, Cashfree Payments, and Razorpay, in connection with its probe into these loan apps.
Many of the illegal loan apps are allegedly being operated by Chinese nationals and entities. These illegal loan apps partner with a defunct non-banking financial company (NBFC) and use its NBFC licence to extend lines of credit.
The ED probe also found that the NBFCs were responsible for creating virtual merchant IDs with payment aggregators, allowing illegal loan apps to conduct transactions.
The ED has alleged that the illegal entities submitted fake addresses to the MCA and were generating proceeds of crime from the seized merchant IDs. The government is conducting a separate probe with the Institute of Chartered Accountants of India (ICAI) to explore the role of the CAs in getting these Chinese loan apps registered.
The investigation agency in its probe also found that the loan apps were remitting the proceeds of crime outside India, in violation of the Prevention of Money Laundering Act (PMLA).
During the meeting, the finance minister also noted the possibility of money laundering, tax evasion, data breach, and misuse of unregulated payment aggregators, shell companies and defunct NBFCs to conduct illegal lending activities.
