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MUMBAI: The Reserve Bank of India (RBI) on Wednesday cautioned people against unauthorised digital lending apps amid growing concerns over coercive recovery tactics and exorbitant interest rates charged by a section of such lenders.

“There have been reports about individuals and small businesses falling prey to growing number of unauthorised digital lending platforms and mobile apps on promises of getting loans in quick and hassle-free manner," the RBI said, adding that these reports also refer to adoption of unacceptable and high-handed recovery methods and misuse of agreements to access data from the mobile phones of borrowers.

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Members of public, it said, are hereby cautioned not to fall prey to such unscrupulous activities and verify the antecedents of the company offering loans online or through mobile apps.

“Moreover, consumers should never share copies of know your customer (KYC) documents with unidentified persons, unverified and unauthorised apps and should report such apps and bank account information associated with the apps to concerned law enforcement agencies or use sachet portal (https://sachet.rbi.org.in) to file an on-line complaint," the central bank said.

This is the second step by RBI in six months involving app-based lenders. On 24 June, RBI had said banks and non-bank financiers, irrespective of whether they lend through their own digital lending platform or through an outsourced entity, must adhere to fair practices guidelines in letter and spirit. The idea was that by cautioning regulated entities like banks and non-banks, it would be able to bring about some discipline in the unregulated ones as well.

Companies providing quick loans through mobile apps are back in focus as they try to use coercive recovery techniques that include incessant calls, and naming and shaming defaulters to their close contacts. Aided by cheap mobile data offered by telcos, Indian smartphone users are a lucrative target for digital lending platforms. However, the covid-19 pandemic has hit borrowers hard, disrupting their cash flows and weakening their repaying capabilities.

To be sure, most such lending apps ask for permission to access contacts on the phone when one installs them. Apart from it acting as a safety net in case of defaults, they also use those contacts to assess credit worthiness of borrowers, many of whom would not have a formal credit history.

Mint reported on 22 December how Abhishek Makwana, a writer on the popular sitcom Taarak Mehta Ka Ooltah Chashmah, killed himself last month, which his family alleged was a result of being harassed for repayment by a loan app.

Problems with regulating these apps are aplenty. A bulk of these lenders are not regulated by RBI as they are not registered as non-banking financial companies (NBFCs) but under money lending acts of various state governments.

On Wednesday, RBI also said it has mandated digital lending platforms, used on behalf of banks and NBFCs, to disclose name of the lender backing them upfront to the customers.

“The names and addresses of the NBFCs registered with the Reserve Bank can be accessed here and the portal for filing complaints against the entities regulated by the RBI can be accessed through https://cms.rbi.org.in," it said.

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