ED attaches funds of NBFC in Chinese-funded instant loan apps probe case

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The Enforcement Directorate (ED) has attached funds of over Rs 72 crore of a non-banking financial company (NBFC) in connection with a money laundering investigation against mobile phone app-based loan dishing companies who were "flush with investments" from China and Hong Kong, the agency said on Wednesday.

It said a provisional order was issued under the Prevention of Money Laundering Act (PMLA) for attaching funds of Rs 72,32,42,045 lying in bank accounts and payment gateway accounts of Kudos Finance and Investments Private Limited, an Indian NBFC company, and its fintech partners.

The action pertains to an ED probe against "a number of Indian NBFC companies and their fintech partner mobile applications (apps) which were booked by Telangana Police in multiple FIRs for illegal lending and for using extortionist means to recover exorbitant rate of interest from their customers".

The ED probe found that various Indian companie "flush with investments" from China and Hong Kong created MoUs with defunct NBFCs and gave security deposits in the name of 'performance guarantees'.

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

"Against RBI guidelines, Indian NBFCs allowed fintech companies to piggyback on their license and do full scale lending in their names," the ED alleged.

Mobile apps of the fintech companies gave "unsecured" instant micro personal loans for term ranging from 7-14 days, it said.

"They used to deduct 15-25 per cent of the loan at the time of disbursement itself in the name of processing fee.

"The rate of interest charged was also exorbitant. Their apps would also capture customers' mobile data by getting various access privileges etc," the ED said.

In order to obtain more profits, it added, they resorted to "harsh recovery" measures via call centres.

The agency said "personal data of the customers was misused and calls were made to the friends and relatives of the customers and abusive language was used".

"Even social media posts were made against the defaulters to shame them. Unable to bear the level of harassment, certain people have committed suicide," it said.

These apps managed to have a recovery rate of more than 90 per cent and earned huge profits, the ED said.

The accused NBFC -- Kudos Finance and Investment Private Limited -- is one of such NBFC company which had MOUs with 39 fintech companies and illegally accepted 'security deposits' from them and allowed them to do lending activity.

"Despite not having net owned funds of more than Rs 10 crore, in complete violation of RBI guidelines, this NBFC (actually its partner mobile apps) did lending of Rs 2,224 crore in a short span of time.

"With the help of extortionist type call centers, collectively they 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 liable for attachment by ED.

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