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RBI has handed list of allowed Loan Apps to Govt, Other Apps will be banned soon


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Reserve Bank of India (RBI) Governor Shaktikanta Das revealed that the central bank has provided a whitelist of lending apps to the Union IT Ministry. The Ministry is anticipated to take action against illegal loan apps that are not on this list, as reported by The Indian Express.

Background on Dubious Loan Apps: In a comprehensive investigation published on November 20-21, The Indian Express highlighted the prevalence of dubious loan apps advertising on Instagram and Facebook. Despite platform claims of effective filters, these apps, some flagged by the government, continued to operate. The RBI initially lacked a whitelist or an updated negative list for registered loan apps.

RBI’s List and Government Engagement: Governor Das stated that the RBI collected a list of loan apps from regulated entities like banks and NBFCs and shared it with the Ministry of Electronics and IT. He acknowledged challenges with illegal lending apps and emphasized active engagement with the government, holding coordination meetings to take appropriate measures against such apps.

IT Ministry’s Confirmation and Response: A senior IT Ministry official confirmed the receipt of a list of “valid” lending apps from the RBI. This list, derived from registered entities, is set to prompt action by the Ministry against unregistered and illegal loan apps.

Growing Issue of Illegal Lending: Fraudulent firms have proliferated amid the rapid growth of digital lending, with an estimated illegal lending market valued at $700-800 million. The Indian Express has reported cases of individuals falling victim to illegal loan apps, leading to unfortunate outcomes.

Government and Social Media Platform Involvement: Prompted by The Indian Express investigation, the IT Ministry directed social media platforms to take additional measures against fraudulent loan app advertisements. The ministry emphasized that consequences would be the sole responsibility of the platforms. The RBI’s recent action aligns with these efforts.

Government’s Initiative and Future Steps: The IT Ministry is reportedly preparing a course of action to address the issue of illegal loan apps. Last October, it suggested that the RBI could establish detailed Know Your Customer (KYC) norms for lending apps, similar to traditional banking processes. The IT Ministry is actively collaborating with the RBI to find solutions to the problem.

Stakeholder Consultations and Whitelisting: Stakeholders, including borrowers, fintech intermediaries, government officials, big tech companies, and former RBI officials, have been consulted as part of a months-long investigation into dubious loan apps. Last November, a decision was made to whitelist digital lending apps after consulting relevant stakeholders.

Addressing the Regulatory Void: Victims of these apps commonly point to a lack of government and regulatory norms, allowing online platforms to conduct minimal due diligence and enabling fraudsters to openly advertise predatory loan apps. The ongoing collaboration between the RBI and the IT Ministry aims to address this regulatory void.

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