The Reserve Bank on Monday said it has cancelled the certificates of registration of two NBFCs -- Star Finserv India and Polytex India -- due to irregular lending practices.

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Hyderabad-based Star Finserv India was offering the service under 'Progcap' (owned and operated by Desiderata Impact Ventures Private Limited).

Polytex India, headquartered in Mumbai, was providing services under the 'Z2P' mobile application (owned and operated by Zaitech Technologies Private Limited).

Giving reasons for cancelling the Certificate of Registration (CoR) of Star Finserv, RBI said the company has violated guidelines on the code of conduct in outsourcing financial services in its digital lending operations by outsourcing its core decision-making functions, such as credit appraisal, loan sanctioning as well as KYC verification process to the service provider.

Star Finserv has violated RBI guidelines on data confidentiality and security of customer information by providing complete access to customer data to the service provider, the RBI said.

Polytex has violated norms on the code of conduct in outsourcing of financial services by outsourcing its core decision-making functions related to client sourcing, KYC verification, credit appraisal, loan disbursal, loan recovery, follow-up with borrowers and attending and resolving complaints from borrowers.

While outsourcing the activities related to lending, Polytex India earned a fixed fee from its service provider, whereas the service provider earned the interest charged to the borrower on these loans and in some cases, at exorbitant rates in violation of the Fair Practice Code (FPC) guidelines, RBI said.

Following the cancellation of registration certificates, the two entities "shall not transact" the business of a non-banking financial institution (NBFI), the RBI added.