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Economic Fraud

40 Shadow Chinese-Backed NBFCs Under ED Scanner



40 Shadow Chinese-Owned NBFCs under ED scanner

NEW DELHI: The Enforcement Directorate (ED) has produced a list of 40 non-banking financial businesses (NBFCs) involved in the digital lending market functioning as undercover companies for Chinese citizens. Furthermore, the investigation agency has requested that the licenses of these shady organisations be revoked by the Reserve Bank of India (RBI).

According to people familiar with the matter, there are companies that have obtained an NBFC licence from the central bank and have also formed alliances with digital loan applications (DLAs) that provide various types of loans, including small personal loans and loans to small and micro-enterprises.

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In this respect, it is worth noting that the banking authority last month revoked the licence of Delhi-based PC Financial Services Private Limited, an NBFC related to Chinese firms. Through the Cashbean app, the company was involved in mobile app-based lending operations.

According to the findings of the central agency inquiry, these NBFCs have no control over loans or recovery, which are predominantly handled by foreign financial technology (fintech) businesses owned by Chinese citizens. Many of these Chinese nationals live in Hong Kong.

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Obtaining an NBFC licence in India is not straightforward, and all that is required is a single Rs 2 crore own corpus. According to sources, these NBFCs are unable to mobilise resources for lending and instead partner with digital lenders, who control the entire business.

“With the RBI’s clearance, ownership of an NBFC has been transferred to such platforms held by foreign nationals in some cases.” However, the RBI has now ceased approving such transfers of NBFC ownership to businesses owned by foreign citizens, primarily Chinese,” a person with knowledge of the situation said.

According to an RBI working group assessment, there were over 1,100 lending applications available for Indian Android users between January 1 and February 28, 2021, with approximately 600, or 54%, being unlawful loan apps.

The apex bank working group advocated tightening the restrictions for such digital lenders after discovering that NBFCs provided more loans through digital channels than banks.

According to the insider, “the fintech has access to the customer data—KYC paperwork, and their Aadhaar number—whatever is available.” Customers are threatened if they do not pay their dues, and they levy usurious interest rates.”

Pavitra Pradip Walvekar, promoter director and CEO of NBFC Kudos Finance and Investment Private Limited, was arrested in November in a money laundering case involving fintech firms funded by Chinese funding.

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