ED has frozen accounts of more than 100 fintech firms

Industry participants say many well-funded and legitimate fintech startups have been named. istock
Industry participants say many well-funded and legitimate fintech startups have been named. istock


Agency tells payment gateways, banks to freeze accounts of around 100 fintech firms without ascribing reason

NEW DELHI : The Enforcement Directorate (ED) has told payment gateways and banks to freeze the accounts of around 100 fintech firms without ascribing any reason, ensnaring legitimate operations and putting some at risk of closure.

According to several people aware of the matter, including fintech firms facing ED action and payment gateway executives, ED Hyderabad sent out a list to payment gateways two weeks ago asking them to block the accounts of about 100 fintechs.

A fintech startup founder whose name figured on the list said he first got to know about the freezing of accounts from his payment gateway (PG) and bank partners.

“We got an email from them saying that ‘we are proactively freezing this particular bank account till we get further notice’. The email also said that our account will remain frozen for a maximum of 60 days and will be automatically released after that period," the founder said on the condition of anonymity.

“We spoke to PGs and banks and figured out what happened. We’d never experienced this before, so we were scared. All they said was ‘ED has sent this notice to us, go and talk to ED as we don’t have further information’. We went to ED Hyderabad office and met officials there," the founder added.

According to people aware of the matter, ED has also sent summonses to these companies.

Industry participants say many well-funded and legitimate startups have been named, including Pagarbook, Propelld, Progcap, Kredily, Pocketly and Krazybee. “Some of these firms were just experimenting with loans and one of them has done just a dozen-odd loans," said an NBFC chief who has been interacting with some of these fintech firms.

The fintech founder quoted above has also received the ED summons. “There were some 50 questions on what we were doing around lending and there were other questions about our net-worth, our investors, how much funding we have raised, our family members and their details, etc. We submitted all our answers and a few days later our account was unfrozen," he said.

“I think they broadly want to know whether are you lending Chinese money or if you have any Chinese connection."

Around 15-20 fintech firms have got a reprieve, including Pagarbook, Progcap and Krazybee, an official aware of the matter said.

Queries to the founders of these companies over LinkedIn and WhatsApp did not result in an immediate response.

Kredily founder Devendra Khandegar in a written response said, “Kredily is an HR and payroll software and we do not do lending. None of our accounts ever got frozen by any bank or any payment gateways."

The ED is yet to respond to Mint queries.

The ED has been cracking down on loan apps for the past two years on charges of Foreign Exchange Management Act (FEMA) and Prevention of Money Laundering Act (PMLA) violations. To be sure, they first came under police investigation after complaints they were putting undue pressure on borrowers for payment.

According to several industry officials, over the past two years all PGs have been getting a list of loan apps every 2-3 months, with orders to freeze these accounts.

“The PGs don’t know if there is a summons or not but all they are asked is to freeze the accounts – which means all payments, salaries etc... all get stopped," said the founder of a loan app firm, which was part of the initial list sent last year.

“Since there is no FIR or notice against us, it is difficult for us to even consult a lawyer," said this person.

Last year in June, the CBI booked Bengaluru ED officer Lalit Bazad for allegedly asking for a 5 lakh bribe to de-freeze a business account of a fintech NBFC company, Apollo Finvest.

Some fintech startups say that such concentrated ED action has demoralised them. “I was this close to shutting down my startup. We went through the whole cycle, of questioning over any alleged Chinese agent or whether we are using Bitcoin to launder money," said the second founder quoted above. “This will really kill the industry because no investor will put in money and no founder would want to deal with this threat," the NBFC head quoted above added.

In December last year, ED arrested Pavitra Pradip Walvekar, CEO of a Pune-based NBFC Kudos Finance and Investments under the provisions of Prevention of Money Laundering Act. He was granted bail by Telangana High Court in February.

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