The Indian government is set to introduce a comprehensive legislative framework aimed at curbing the rise of illegal lending applications, the New Indian Express reported.
The Department of Financial Services under the Ministry of Finance has drafted a bill that imposes severe penalties on individuals and entities involved in unregulated lending activities.
According to the draft bill, those found promoting unauthorized lending operations could face imprisonment for up to ten years and monetary fines reaching ₹1 crore. The legislation seeks to eradicate illegal lending practices carried out through digital platforms as well as other non-digital means, ensuring a broad scope of enforcement.
A key component of the bill is the establishment of an authoritative body tasked with maintaining a database of all authorized lenders operating within the country. This database will be accessible to the public, allowing individuals to verify the legitimacy of lenders.
Regulated entities will be required to provide detailed information about their activities to the authority. Failure to comply with these requirements could result in fines of up to ₹5 lakh.
Furthermore, the bill mandates that every regulated lender must report their operational activities to the designated authority.
This information will be shared with law enforcement agencies, including the Central Bureau of Investigation (CBI) and state police, to facilitate effective monitoring and enforcement.
The proposed legislation also includes provisions for conducting raids without warrants on suspected illegal lenders, significantly strengthening the government’s enforcement capabilities.
These measures are designed not only to penalize those directly involved in illegal lending but also to hold accomplices accountable, thereby addressing the issue comprehensively.
Mayank Arora, Director-Regulatory at Nangia Andersen India, highlighted the bill’s intent to criminalize offenses related to illegal lending and impose strict punishments on all parties involved.
The move comes two years after the Reserve Bank of India (RBI) introduced Digital Lending Guidelines aimed at curbing unfair practices by regulated entities.
The proliferation of illegal loan apps has emerged as a significant concern in India. These apps often provide small loans at exorbitantly high interest rates and employ coercive methods to recover debts, leading to severe financial distress and, in some cases, forcing borrowers to take their own lives.
Many of these illicit applications operate from overseas, leveraging local finance companies with minimal regulatory oversight.
The government’s initiative is expected to enhance consumer protection by ensuring transparency in the lending sector and preventing fraudulent practices.