ED ties NBFC funds in case investigating China-funded instant loan apps


The Law Enforcement (ED) Directorate has seized funds of more than Rs 72 crore from a Non-Banking Financial Company (NBFC) as part of a money laundering investigation against loan companies based on mobile phone apps that were “full of investment” from China and Hong Kong, the agency said on Wednesday.

He said an interim order had been issued under the Prevention of Money Laundering Act (PMLA) to seize funds of Rs 72,32,42,045 from bank accounts and gateway accounts of payment from Kudos Finance and Investments Private Limited, an Indian NBFC company, and its fintech partners.

The action relates to an ED investigation against “a number of Indian NBFC companies and their fintech partner mobile apps (apps) which have been booked by Telangana Police across multiple FIRs for illegal loans and for using means of extortion to recoup exorbitant interest rates from their customers.”

The ED investigation revealed that various Indian companies “filled with investments” from China and Hong Kong created MoUs with outdated NBFCs and gave security deposits in the name of “guarantees performance”.

“NBFCs opened separate merchant IDs with payment gateways like Paytm, Razorpay, etc. and enabled these fintech companies to start large-scale online lending operations.

“As per RBI guidelines, India’s NBFCs have enabled fintech firms to piggyback on their license and make large-scale loans on their behalf,” the ED alleged.

Fintech companies’ mobile apps provided instant “unsecured” personal micro-loans for terms ranging from 7 to 14 days, he said.

“They used to deduct 15-25% of the loan at the time of disbursement itself in the name of processing fees.

“The interest rate charged was also exorbitant. Their apps would also capture customers’ mobile data by gaining various access privileges etc,” ED said.

In order to secure more profits, he added, they resorted to “hard takeover” measures through call centers.

The agency said “clients’ personal data was misused and calls were made to clients’ friends and relatives and abusive language was used.”

“Even social media posts were made against defaulters to shame them. Unable to bear the level of harassment, some people took their own lives,” he said.

These applications managed to have a recovery rate of over 90% and made huge profits, the ED said.

The accused NBFC – Kudos Finance and Investment Private Limited – is one such NBFC company that had memorandums of understanding with 39 fintech companies and illegally accepted “security deposits” from them and allowed them to make lending activities.

“Despite having no net equity of more than Rs 10 crore, in complete violation of RBI guidelines, this NBFC (effectively its partner mobile apps) lent Rs 2,224 crore in a short period of time .

“With the help of extortionist-style call centers, they collectively generated profits of Rs 544 crore for the apps and also earned a commission of Rs 24 crore,” the ED alleged.

These amounts are nothing but “illegal proceeds of crime” and are subject to seizure by ED.

The agency in December last year had arrested the promoter, director and chief executive officer (CEO) of this NBFC, Pavitra Pradip Walvekar.

(Only the title and image of this report may have been reworked by Business Standard staff; the rest of the content is automatically generated from a syndicated feed.)

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