The companies violated RBI guidelines on the code of conduct
On Monday, theReserve Bank of India (RBI) announced that it has cancelled the licenses of two non-banking financial companies (NBFCs), Polytex India Ltd and Finserv India Ltd for violating its guidelines.
Polytex India Ltd is based in Mumbai and Finserv India Ltd operates out of Banjara Hills in Hyderabad.
The RBI said Polytex India Ltd has violated RBI guidelines on the code of conduct in outsourcing 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.
While outsourcing the activities related to lending, Polytex 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.
In the case of Finserv India Ltd, RBI said the company has violated the guidelines on the code of conduct in outsourcing the 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 company has also violated RBI guidelines on data confidentiality and security of customer information by providing complete access to customer data to the service provider.
Besides, the company has violated RBI guidelines on the Fair Practices Code by not providing a copy of the loan agreement and sanction letter in vernacular language to its customers.
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