IBSPECIAL

Eardu Palaniselvam was playing online rummy one night with four of his friends sometime around Christmas. Though the game began well, the tide seemed to be turning against him. Suddenly, the hand of providence seemed to rescue him, or so it seemed.

Credit Mama, a short-term personal loan provider, popped up on the screen, advertising instant loans. Though the app offered a loan of Rs 50,000 for a year with the repayment of Rs 50,195 after a year, Palaniselvam took it for a rummy jackpot.

A few clicks after, Rs 3,477 got deposited into his account. He received a message from his bank intimating him about it. All was done in a few seconds, but only after the company took note of his contacts and his social media address. He became prey to a payday loan apps racket.

“If you share your social media details, the interest rates are lowered,” said Palaniselvam.

Though Palaniselvam was sanctioned a loan of Rs 5,000 for seven days, only Rs 3,477 was credited to his account. The processing fee was Rs 1,000, goods and services tax (GST) on that was Rs 180 and the interest fee was Rs 343. In the heat of the game, he did not realise the cost of credit and its implications.

After a week when he tried to repay the money, he got a message that the system was down. He was unable to pay. This continued for a month and the loan became Rs 50,000, with interest and late fee all loaded into it.

Palaniselvam was lucky that he could clear his debt in one shot after a friend, who had got a message from Credit Mama about this case, volunteered to help.

Thousands of small borrowers like Palaniselvam have fallen victim to online payday apps, many of which mushroomed just before or during the Covid-induced nationwide lockdown. People lost jobs or their companies were functionally shut and they had to live without pay. The loan apps, allegedly run by the Chinese, exploited the situation by appearing through sly advertisements on YouTube and Facebook or, as in Palaniselvam’s case, in the rummy circle.

Policy lacunae also helped. The Reserve Bank of India (RBI) does not have any regulations for financial intermediaries like the loan apps entities. After a spate of suicides and a series of arrests by the police, the RBI set up a committee to look into the issue. The working group is expected to submit its report within three months, a gap many feel is too long in a situation as grave as this.

Some observers believe that the RBI has taken a step which is too late and too little. “Given that the issue is so hot and some of the borrowers are taking extreme measures like suicides, the RBI seems rather too slack and flippant. It should have blacklisted the apps and brought out regulations promptly,” said an observer who has been tracking the banking sector for years.

Some bankers, though, feel that the responsibility should lie with the police and that the RBI can’t do much to curb these unregistered loan apps, which have created havoc among small borrowers as they have flocked to these rapacious lenders in their desperation to get cash in these troubled times.

The RBI is working closely with banks in this regard. In the last few years, banks have already taken several steps to enhance the safety and security of the various applications in use. Federal Bank has a standard process of ensuring vulnerability assessment, and penetration testing is done for all the applications that the bank is associated with,” said Federal Bank executive director Shalini Warrier.

The payday apps have already resulted in the deaths of more than 30 people across the five states of Kerala, Tamil Nadu, Karnataka, Telegana and Andhra Pradesh. Many thousands more were made to pay at extortive rates of interest.

It was the naming and shaming that was killing young borrowers. Adarsh, a 27-year-old lab technician, borrowed Rs 4,000 to meet a sudden medical emergency for his father. “After two days of naming and shaming from the call centre staff of an online instant loan provider, he killed himself,” says his father. Adarsh’s elder brother died a few years back during an appendicitis operation.

The tale of 34-year-old Subitha is equally tragic even though she has managed to clear her dues and is off the lender’s hook. A fourth-stage cancer patient, she ran up a huge debt when the country went into lockdown last year to fight off the pandemic. Her husband Prajeesh, a painter, was without a job for months. Running out of money for household needs, Subitha borrowed Rs 4,000 from Rupee Plus, an online loan app, in September 2020. “For a loan of Rs 4,000, I got only Rs 2,900 and in a week I had to repay Rs 4,050,” she said.

Two years back and just ten days into her marriage, Subitha was diagnosed with spinal and lung cancer. After a few rounds of radiation, she is out of medicines now. She lives with her husband in her family home in the Malapurram district in North Kerala. Her mother, an Aganwadi worker, brings home a regular income, but even that sometimes gets delayed.

“It was a harrowing experience,” Subitha recollects.

When she failed to repay one app lender, another app popped up on her mobile device, promising that it would repay the first loan. This way she clicked into 45 apps, adding up to a loan of Rs 1.5 lakh. She and her close relatives pledged gold and repaid a debt of Rs 3.5 lakh. But not all apps were so cutthroat. Another app, Gold Bowl, never called her for repayment after she narrated her story.

These shady loan apps use the same modus operandi. Borrowers are mainly eligible for loans as small as Rs 2,000, going up to Rs 5,000. All their contact details are accessed and only then is the loan extended to them. If they fail to pay on the first due date, calls are made to their contacts. The intensity of naming and shaming increases as the repayment days get extended in a bucket system from one to seven. Sister apps also provide further loans so that the borrower can repay one loan but still remain indebted. In many cases, borrowers have taken loans from multiple apps companies, thus falling into a debt trap.

Money lending and debt traps have always been a bane in India. Many borrowers had to work as bonded labourers for the money lenders for years as they were unable to repay their debts. But the lending apps play on the psyche of the borrowers, stamp women borrowers as prostitutes and circulate pictures in various groups. They also contact friends and relatives through WhatsApp to bad mouth the borrower.

“The sad part is that the naming and shaming begins just minutes after the default,” says Sabastian Verghese.

If you have taken a loan at 1 pm on Monday, the repayment has to take place exactly at the same time a week later. For being even five minutes late, the loanee is bombarded with abusive calls. A fraud label is put across the borrower’s picture and sent to friends and relatives.

So how does the loan apps fraud network lure borrowers into the trap? In some cases, logos of big banks like SBI, HDFC Bank and ICICI Bank are used to attract the customers, saying they will be given loans up to Rs 50,000. Once you click, you enter the actual portal of these shady loan apps entities. In one loan apps firm, Prime Minister Narendra Modi’s picture was used to lure customers.

Technisanct, a data cyber security start-up backed by multiple institutions including Data Security Council of India (DSCI), found in its research that Benefactum Alliance (India) Fintech is owned by three people including Chinese director Du Xuezhen, Abhishek Kumar and Deepak Kumar Jha. There are 11 fintech companies with identical business profiles and are in turn owned by Jha. Some of these companies are Quickgo Fintech, Clickone Technology, Credit Mama Fintech, GoReady Fintech, MoneyXL Technologies, CashAsia Fintech, Loanbee Fintech, PocketXL Technology and CashBee India Technology.

Abhishek Kumar is a director recruited by Benefactum Alliance (India) Fintech, which started operations in India in March 2019. The websites of all these companies are identical, Technisanct pointed out in its findings. Indianbankingnews.com could not independently verify these facts.

All these different brands—CashXL, Mudra, Rhino Finance and Cash Daddy—are owned and operated by a group of common directors. Even if the app is banned, these operators can work using their website portals. They have options to provide loans through their websites,” Technisanct founder and chief executive officer Nandakishore told Indianbankingnews.com.

According to the police, the Chinese run these shady loan apps companies and appoint Indian directors who have no operational power. Call centres are also set up to service these lending apps entities. The call centre staff are asked to make calls to the borrowers and the recovery task becomes more abusive depending upon the days of default.

“The Chinese were in control of the operations. None of the Indians had any operational control and even the passwords and login IDs were with the Chinese,” said Hyderabad additional commissioner of police (crimes and SIT) Shikha Goel.

Police busted another loan apps racket in Bengaluru on 14 January, where recovery was being undertaken for loans taken through M Rupee, My Cash, Aurora Loan, Quick Loan, Dmoney, Rapid loan, Eazy Cash, New Rupee and Rupee Loan. Among those arrested were 28-year-old S Promoda and CR Pavan of Karnataka, who came across an advertisement in Naukri.com to set up a call centre, along with 38-year-old Xia Ya Mau and 28-year-old Yuvan Lun. The call centre had 100 employees who were paid Rs 8,000 a month. Each employee had a set target of 10 recoveries a day.
“To operate in India, they either partner with a financial entity that has an NBFC licence or they buy one—it could even be a chartered accountancy firm—and hire an Indian director who gets paid to mark his signatures,” said Pravin Kalaiselvam, chairman of Save Them India, an NGO. This foundation has filed a public interest litigation (PIL) in the Supreme Court seeking directions to register an FIR for cyber terrorism and cybercrime under several relevant sections of the Information and Technology Act, 2000 and the Indian Penal Code.

“That several of these apps are Chinese-owned is not a secret. CashBean is owned by tech firm Opera, which itself is owned by a Chinese investment firm. Another app, Moneed, makes its Chinese roots explicit on its website. Mad Elephant likewise lists a Chinese director on its corporate filings,” said Kalaiselvam.

The economic situation after the outbreak of Covid-19 was fertile for these loan apps companies to mushroom in India. More than 120 million Indians lost their jobs in April alone, according to the Centre for Monitoring Indian Economy (CMIE). Official government numbers estimate that more than 45% of the population earn Rs 10,000, a fact that makes this population an easy prey to the one-click lending apps, which just want Aadhar numbers and contact details from the borrowers.

The scale of the operations is throwing up challenges to the police. The volume of transactions of these loan apps has crossed Rs 25,000 crore, according to police estimates. “This estimate could rise further as our investigations advance,” says Goel.

Some fear that the credibility of genuine online lending apps could get impacted. Several private banks with limited branch networks use loan apps to act as a bridge between the customer and the lender as they seek to widen their net of borrowers. Smaller the bank, the higher the dependence on the apps to bring new business and recover dues.

Rupeek is a lending app used by Federal Bank to offer gold loans. They provide end-to-end solutions, right from loan origination to sanction, getting the gold to the branch and then facilitating the recovery process. “Our tie-up with entities like GPay and Paisa Bazaar have helped us enhance our distribution. Our tie-up with Rupeek is an innovative approach to the distribution of gold loans and is an industry-first,” said Warrier.