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Deep rot: Why the RBI finally pulled the plug on Cashbean

The outfit operated in violation of various RBI norms. There was also a Chinese ownership angle, which triggered ED action. But Cashbean’s case isn’t an isolated incident.

February 25, 2022 / 02:16 PM IST

Google’s Play Store describes Cashbean as a personal loan app from PC Financial Services. The outfit, which is in the crosshairs of banking regulator Reserve Bank of India (RBI) as well as the Enforcement Directorate (ED) for a series of violations, promises to disburse personal loans instantly. The information on the Google Play Store is still visible.

On February 24, the RBI revoked the Certificate of Registration (CoR) of PC Financial, the non-banking finance entity that operated the digital lending app.

The regulator cited a raft of charges against the firm for gross violation of the Fair Practices Code and RBI directions on outsourcing and Know Your Customer norms. Cashbean was found to be charging borrowers usurious rates of interest and other charges in an opaque manner. It was also found to be indulging in unauthorised use of the RBI and CBI logos for recoveries, the Central bank said.

According to the company’s website, the directors of PC Financial services include Vaibhav Misha, Raguhvir Ghakar and Shishir Shah, all experienced professionals in the banking and financial industry.

Moneycontrol couldn't contact Cashbean for a comment. The website of Cashbean (www.cashbean.in) isn't working.

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What was promised

Cashbean offered small loans in the range of Rs 1,500 to Rs 60,000 for tenures ranging from 3-6 months at an interest rate of close to 26 per cent per annum. According to the company’s version, for a 6-month loan of Rs 10,000 with an interest rate at 25.55 percent per annum, the total amount to be repaid would be Rs11,991.60 including all charges and GST.

What attracted customers, particularly the young, to this app was that it didn’t ask for much personal information while disbursing loans, unlike conventional banks and NBFCs. No credit history was required to get a loan and the access offered was 24x7.  The only eligibility criteria a borrower needed to get a loan from ‘Cashbean’ was to prove that he or she was an Indian resident in the 18-56 age group and has a source of monthly income. All that one needed to do was to install the app from the Google Play Store, fill out the application and get a verification call, after which the amount would be disbursed.

What really happened

However, it was never the smooth operation described above. The moment one defaulted on the loan amount, Cashbean representatives would reach out to the customer with arm-twisting tactics to recover money, often to the level of harassment.

Subsequently, RBI investigations found the firm was imposing usurious charges and engaged in coercive, unfair practices to recover money from clients, including unauthorised use of logos of both the RBI and the Central Bureau of Investigation.

Meanwhile, there were technical glitches that completely cut the customer off from the digital lending app. Starting November 2021, customers began to raise complaints on social platforms about the lack of access to the app. Customers said they were unable to log in despite updating to the latest version. They simply got a message that said: ‘Request failed, Please try again’. Many faced this issue.

Then came the wrath of the Enforcement Directorate.

On December 15, the New Indian Express reported that the Enforcement Directorate (ED) had seized an additional amount of Rs 51.22 crore lying in the bank accounts of PC Financial Services Private Limited (an NBFC) and virtual accounts with the payment gateways of the fintech company. The enforcement agency had already attached Rs 238 crore from the Gurgaon-based company earlier, reports said.

What triggered the ED action?

The ED alleged that PCFS is controlled by a Chinese national through a maze of shell companies. The agency also accused the firm of money laundering and violation of the Foreign Exchange Management Act (FEMA).

The Directorate said PCFS is a wholly-owned subsidiary of Oplay Digital Services, SA de CV, Mexico, which is in turn owned by TenspotPesa Limited of Hong Kong. TenspotPesa is owned by Chinese national Zhou Yahui. The original Indian Company PCFS was incorporated in 1995 by Indian nationals and got an NBFC license in 2002. After RBI approval in 2018, ownership moved to the Chinese-controlled company, according to the New Indian Express report.

The ED’s investigations revealed that the fintech company provides micro loans through its mobile app for suspicious foreign outward remittances.

The RBI steps in…

According to people familiar with the development, the banking regulator started scrutinising the operations of PC Financial Services late last year and found violations in multiple areas.

“The CoR of the company has been cancelled on account of supervisory concerns such as gross violations of RBI directions on outsourcing and Know Your Customer norms,” the RBI statement said.

“The company was also found to be charging usurious rate of interest and other charges to its borrowers in an opaque manner apart from indulging in unauthorised use of logos of Reserve Bank and Central Bureau of Investigation for recovery from the borrowers in gross violation of the Fair Practices Code,” the Central bank said.

The rot runs deep..

What happened with Cashbean may only be the tip of the iceberg. There are many digital lending apps that operate in violation of prudential norms and engage in unfair practices.

In December 2020, Moneycontrol ran a story that highlighted how Illegal app-based financiers are thriving across the country and how these new-age moneylenders target younger customers who look for quick loans for consumption purposes.

Illegal lending apps are no different from illegal moneylenders who have been operating in India for ages and typically lend against land or gold ornaments to low-income groups. Like the typical moneylender, they, too, engage in coercive lending practices to get their money back. Naming and shaming a defaulting borrower among his/her contacts is a common practice.

In January 2021, Google removed several moneylending apps from the Play Store after finding violations. Among them were Cashguru, 10MinuteLoan, Rupeeclick and Finance Buddha.

The new crop of moneylenders uses technology to promote loans, especially with the young customer segment, for consumption-related purposes.

Industry experts have highlighted how the business model of digital lending apps is fraught with risks when it comes to the collection process. “Giving money is easy. The problem is always to get it back,” said the founder of a leading NBFC, requesting anonymity.

Data leakage

Then there are data leakage issues. Recently, some customers of the Indiabulls-owned Dhani Loans and Services app complained that unknown third parties have misused their PAN card details to seek loans on the platform.

Alleging that their PAN details were used by unknown people to avail loans via Dhani, some have complained that they are facing show-cause notices by collection agents for loans they never took. The complainants added that their credit scores have also been impacted, as credit reports have listed loans they had never availed of as defaults.

Dhani has acknowledged the issue.

RBI regulations

In November, an RBI working group found that 600 of the 1,100 loan apps on Indian app stores were illegal. In view of this, the group has recommended a public register be maintained of verified apps.

Among other things, the working group recommended that balance sheet lending through these apps be restricted to entities regulated and authorised by the RBI. All loan servicing, repayments, etc. should be executed directly in a bank account of the balance sheet lender and disbursals should always be made into the bank account of the borrower, the report added.

The working group, headed by RBI Executive Director Jayant Kumar Dash, recommended setting up a nodal agency that will primarily verify the technological credentials of lenders in the digital lending ecosystem and also the constitution of a Self-Regulatory Organisation (SRO) covering these participants.



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Dinesh Unnikrishnan is Deputy Editor at Moneycontrol. Dinesh heads the Banking and Finance Bureau at Moneycontrol. He also writes a weekly column, Banking Central, every Monday.
first published: Feb 25, 2022 01:24 pm
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