Operation Hafta Vasooli: Govt directs NBFCs to conduct yearly KYC to curb Chinese loan apps from using dormant NBFC accounts

Chinese Loan Apps: In a new development in the case of fraudulent Chinese loan apps, it has come to light that Non-Banking Financial Companies (NBFC) that were either struck off by the Ministry of Corporate Affairs or have become dormant, are being used by Chinese companies as loan apps. Zee Business had first raised the issue of exploitative practices adopted by digital lending companies in April 2020 and launched a campaign against such practices under “Operation Hafta Vasooli”

On Monday, November 14, the Ministry of Home Affairs held a meeting with Reserve Bank of India (RBI), the Ministry of Corporate Affair (MCA), and the Ministry of Finance. In the meeting, the government directed RBI to do a Know your Client (KYC) every year which will help in keeping a record of operational NBFCs. The government in the meeting also instructed tightening of regulations for Fintech Companies. 

As per the investigation, 5000-6000 NBFCs that were struck off, dormant, or have have sold their accounts to Chinese loan apps. 

Click here to know more about Operation Hafta Vasooli

In September, RBI issued guidelines concerning digital lending and asked financial institutions and banks to formulate systems in order to comply with RBI's modified digital lending norms. 

The country's central bank, in its release, had announced that its new norms pertaining to digital lending would be applicable to both new customers seeking loans and existing customers availing fresh loans. 

RBI had also tightened digital lending norms to prevent entities from charging exorbitant interest rates and to curb unethical loan recovery practices.

Operation Hafta Vasooli   

Under the “Operation Hafta Vasooli” campaign, Zee Business investigated approximately 250 digital lending applications and their parent companies, and found that many companies charged a 36-40 per cent rate of interest for short-term loans (with 15-30 days maturity) with exorbitant processing fees and heavy penalties. 

The worst part was the method of recovery adopted by third-party agents, which included calling customers at odd hours, humiliating them on social media with abusive posts, creating WhatsApp groups of friends and relatives using contact data extracted through the app, and posting expletives, threatening to post private photographs on social media if dues with heavy penalty and interest were not cleared as per their whims. Zee Business also exposed how the Chinese investors are misusing Indian NBFCs and earning huge returns in the process.  

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