Despite RBI crackdown, instant loan apps continue to thrive

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Despite the Reserve Bank of India (RBI) crackdown on “illegal” digital loan apps, instant loan apps are still popular among Indian users. According to a report released today by community-based social media platform Local Circles, these apps continue to charge customers interest rates of up to 500% and use extortion methods to collect money from defaulting borrowers or debtors.

The company surveyed over 27,500 citizens residing in 409 districts of India and found that 14% of respondents had used instant loan apps in the past two years. Of these, 58% said they or a member of their household staff had taken out a loan using instant loan apps since 2020 and that annual interest of more than 25% had been billed.

According to information provided by consumers, instant loan apps usually charge an interest rate of 30-60% on a loan of 3,000 to 5,000 and hence the interest rates vary depending on the loan amount and loan repayment term. At the height of the pandemic, some platforms reportedly charged up to 400-500% interest rates. In addition, more than half (54%) of citizens experienced extortion or misuse of data during the collection process, according to the study.

Earlier in 2022, an RBI digital lending task force found that more than half of the roughly 1,100 digital lending providers operated illegally and were available in app stores. In a bid to prevent illegal digital lending activities, RBI has proposed the Indian government to formulate new legislation.

Also globally, tech giant Google has blocked hundreds of apps from its Android store to protect borrowers from “misleading and abusive terms”. Officials in China, Indonesia and Kenya also reportedly shut down many loan companies that promised quick money to the unbanked.

The main factor that attracts people to these applications is the easy processing of loans without any collateral. Details like copies of Aadhaar card, voter ID card and Pan card submitted while processing the loan can be misused. More importantly, the contacts and photos stored in the victims’ cellphones were misused, according to various reports. The unnecessary proliferation of smartphones and cheap data plans helped drive the process, he said.

More recently, RBI Governor Shaktikanta Das warned people against unregistered digital lending apps, and so if people have complaints about such entities, then they should file complaints with the police. However, if RBI receives complaints against lending platforms, which are registered with it, the central bank will take action, he said. Additionally, the governor said the apex bank is expected to issue guidelines soon to regulate digital lending.

The maximum number of complaints were filed in Maharashtra, followed by Karnataka, Delhi, Haryana, Telangana, Andhra Pradesh, Uttar Pradesh, West Bengal, Tamil Nadu and Gujarat, according to the RBI report. The Maharashtra Police Cybercrime Team has written to the Google Play Store demanding the removal of 69 loan apps after receiving hundreds of complaints of harassment and threats made to customers by fraudulent loan collectors.

LocalCircles said it shared the findings with RBI, anticipating feedback to help individuals and businesses avoid falling prey to the growing number of unauthorized digital lending platforms and apps.

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