With a view to curb unregulated lending activities and to protect the interest of consumers, the Reserve Bank of India (RBI) had constituted a Working Group on Digital Lending which submitted its report along with its recommendations in November 2021. The Department of Financial Services, Ministry of Finance (MoF), has published the draft bill on Banning of Unregulated Lending Activities (Draft Bill) with the objective to curb unregulated lending activities. The Draft Bill envisages to inter alia ban all persons / entities not authorized by RBI / other regulators and not registered under any other law from undertaking public lending business activity.
The key points covered by the Draft Bill include inter alia the following aspects:
- Key Definitions
The key definitions under the Draft Bill include inter alia the following:
- ‘Digital Lending’ means a remote and automated public lending activity, largely by use of digital technologies for customer acquisition, credit assessment, loan approval, disbursement, recovery, and associated customer service
- ‘Lender’ means any person, who undertakes lending activities
- ‘Public Lending Activity’ means business of financing by any person whether by way of making loans or advances or otherwise of any activity other than its own at an interest, in cash or kind but does not include loans and advances given to relative(s)
- ‘Regulated Lending Activities’ means the lending activities specified under the laws listed in First Schedule.
- ‘Unregulated Lending Activities’ means lending activities which are not covered under Regulated Lending Activities as defined above, carried by any person whether through digital lending or otherwise which are not regulated under any other law for time being in force.
- Banning of Unregulated Lending Activities
All unregulated lending activities (including digital lending) shall be banned, and no lender shall, directly or indirectly, promote, operate, issue any advertisement in pursuance of an unregulated lending activity.
Any lender who lends money, whether digitally or otherwise in contravention of the above provision shall be punishable with imprisonment for a term which shall not be less than two years but which may extend to seven years and with fine which shall not be less than two lakh rupees but which may extend to one crore rupees. Further, any lender who lends money whether digitally or otherwise in contravention of section 3 and uses unlawful means to harass and recover the loan, shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to ten years and with fine which shall not be less than five lakh rupees but which may extend to twice the amount of loan.
- Wrongful Inducement in relation to Unregulated Lending Activities
No person by whatever name called shall knowingly make any statement, promise or forecast which is false, deceptive or misleading in material facts or deliberately conceal any material facts, digitally or otherwise to induce another person to apply or take loan from lenders involved in unregulated lending activity.
Any person who contravenes the above provision shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to five years and with fine which may extend to ten lakh rupees.
- Offences by Lenders other than Individuals
Where an offence has been committed by a lender other than an individual, every person who, at the time the offence was committed, was in charge of, and was responsible to, the lender for the conduct of its business, as well as the lender, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
- Central Database
The Central Government may designate an Authority, whether existing or to be constituted, which shall create, maintain and operate an online database for information on lenders operating in India and which shall have the facility for public to search information about lenders undertaking regulated lending activities and shall also facilitate reporting of illegal lenders or cloned lenders.
- Publication of Advertisement of Unregulated Lending Offers
Where any newspaper or other publication of any nature, contains any statement, information or advertisement promoting, or inducing any person to apply for any loan from any lender involved in unregulated lending activity, the appropriate Government may direct such newspaper or publication to publish a full and fair retraction, free of cost, in the same manner and in the same position in such newspaper or publication as maybe prescribed.
- The First Schedule appended to the Draft Bill sets out the scope of ‘Regulated Lending Activities’, which refers to the lending activities regulated under the list of Acts stated thereunder, including inter alia Reserve Bank of India Act, 1934, Banking Regulation Act, 1949, Companies Act, 2013, Limited Liability Partnership Act, 2008, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, etc.
For more details, kindly refer to the Draft Bill on Banning of Unregulated Lending Activities, available by clicking on this link.
Authors & Contributors
Partner(s):
Associate(s):
Keshav Pareek
Ishaan Gupta
Shivani Pattnaik