RBI Revokes Licenses of Two NBFCs Over Irregular Lending

The Reserve Bank of India (RBI) announced on Monday that it has revoked the registration certificates of two non-banking financial companies (NBFCs), Star Finserv India and Polytex India, due to irregular lending practices.

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Hyderabad-based Star Finserv India was operating under Progcap, owned by Desiderata Impact Ventures Private Limited. Meanwhile, Mumbai-based Polytex India provided services through the Z2P mobile application, managed by Zaitech Technologies Private Limited.

Violations by Star Finserv India

The RBI cited several reasons for cancelling Star Finserv's Certificate of Registration (CoR). The company breached guidelines on outsourcing financial services by delegating core decision-making functions, such as credit appraisal, loan sanctioning, and KYC verification, to its service provider. Additionally, Star Finserv violated data confidentiality and security norms by granting full access to customer data to the service provider.

Issues with Polytex India

Polytex India also faced similar issues. The company outsourced key decision-making functions related to client sourcing, KYC verification, credit appraisal, loan disbursal, loan recovery, follow-up with borrowers, and complaint resolution. This outsourcing led to violations of the code of conduct in financial services.

While outsourcing lending activities, Polytex India earned a fixed fee from its service provider. However, the service provider collected interest from borrowers at times at exorbitant rates, violating Fair Practice Code (FPC) guidelines.

Following these findings, the RBI has prohibited both entities from conducting any business as non-banking financial institutions (NBFIs).