The Reserve Bank of India (RBI) on 8 July cancelled the license of two non-banking finance companies (NBFCs) Mumbai-based Polytext India Ltd and Telangana-based Star Finserv India Limited citing rule violations.
In the case of Polytex, the RBI said it has violated the violated RBI guidelines on code of conduct in outsourcing of financial services by outsourcing its core decision-making functions related to client sourcing, Know Your Customer (KYC) verification, credit appraisal, loan disbursal, loan recovery, follow up with borrowers and attending and resolving complaints from borrowers, the RBI said.
“While outsourcing the activities related to lending, the company earned a fixed fee from its service provider, whereas the service provider earned the interest charged on the borrower on these loans and in some cases at exorbitant rates in violation of Fair Practice Code (FPC) Guidelines issued by RBI,” the RBI said.
In the case of Star Finserv, the RBI said the company has violated the RBI guidelines on code of conduct in outsourcing of 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.
Also, the company 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.
Further, the company has violated RBI guidelines on Fair Practices Code by not providing the copy of loan agreement and sanction letter in vernacular language to its customers, the RBI said.