RBI cancels certificate of registrations of Star Finserv India, Polytex India due to irregular lending practices

Reserve Bank of India

The Reserve Bank of India (RBI) on July 8 said it has cancelled the certificate of registrations of Star Finserv India Ltd and Polytex India Ltd due to irregular lending practices.

The central bank had issued certificate of registration to Star Finserv India on September 4, 2015, and Polytex India on February 20, 1998.

Star Finserv India has violated 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, the RBI said in a press release.

Star Finserv India has alos violated guidelines on data confidentiality, security of customer information by providing complete access to customer data to the service provider, Fair Practices Code by not providing the copy of loan agreement and sanction letter in vernacular language to its customers, release added.

Further, Polytex India 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 release said.

The central bank said, Polytex India, while outsourcing the activities related to lending, 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.