New Delhi: The latest menace online has come in the form of apps that enable one to get an instant cash loan. A committee constituted by the Reserve Bank of India (RBI) has now found that more than half of the 1,100 personal loan apps available on Android devices* are illegal.
The RBI-constituted panel found more than 600 illegal apps that could be accessed through keywords such as loan, instant loan, quick loan, etc. The 1,100 digital loan apps are available on more than 80 app stores, the committee found.
Based on the committee's recommendations, the RBI had asked Google to provide banking/non-banking financial company (NBFC) certification to validate the apps, said Rahul Sasi, a panel member, and executive chairman and founder of cyber security firm CloudSEK.
The committee, which suggested a slew of measures to rein in the illegal digital loan apps, also recommended introducing a cooling-off period of two to 14 days. The period would help a customer, who had availed a loan through the app, to repay and back off, thereby avoiding a debt trap.
Currently, the apps do not allow a customer to close the loan with interest before the end of stipulated tenure. The recommendation would help the customer, who has a change of mind, to repay the loan with the interest-only for the cooling-off period.
NBFCs provide more digital loans
The committee, formed in January this year, also found that NBFCs were sanctioning more digital loans than scheduled banks. The panel had studied 28 scheduled banks and 62 NBFCs.
The findings revealed a quantum jump in the number of loans sanctioned by NBFCs. In 2017, digital loans from NBFCs comprised 0.68 per cent, which shot up to 60.53 per cent in 2020. Scheduled banks, meanwhile, sanctioned only 5.56 per cent of digital loans in 2020.
Private banks were found to be ahead in disbursing loans. Of the total digital loans in 2020, 55 per cent were by private financiers.
The committee also reported that the tenure of 37.5 per cent of loans by NBFCs was short-term, with a tenure of fewer than 30 days. As many as 87 per cent of digital loans by banks, meanwhile, has a tenure of more than a year.
It has been reported that several online loan providers had procured the licences of NBFCs that had gone bust to launch illegal apps.
The RBI survey was conducted following a slew of recent suicides by young men in some parts of the country after they fell into a debt trap after securing easy finance by way of mobile applications. The dead men were reportedly pestered by loan sharks.
* An Android device is a device that runs on the Android operating system. Android is a range of software intended for mobile devices such as smartphones, tablet PC, e-book readers or any type of mobile device that requires an OS.