The Enforcement Directorate (ED) on Wednesday said it had attached funds worth over Rs 72 crore from a non-banking financial company (NBFC) in connection with a money laundering investigation into mobile phone app-based loan dishing companies that were "flush with investments" from China and Hong Kong.
It stated a temporary order was granted under the Prevention of Money Laundering Act (PMLA) to seize funds totaling Rs 72,32,42,045 from Kudos Finance and Investments Private Limited, an Indian NBFC, and its fintech partners' bank accounts and payment gateway accounts.
The action stems from an ED investigation into "a number of Indian NBFC companies and its fintech partner mobile applications (apps) that were booked by Telangana Police in various FIRs for illegal lending and utilising extortionist techniques to recoup exorbitant interest from their consumers."
Various Indian companies "flush with capital" from China and Hong Kong signed MoUs with defunct NBFCs and gave security deposits in the name of "performance guarantees," according to the ED investigation.
"NBFCs established distinct merchant IDs with payment gateways such as Paytm, Razorpay, and others, allowing fintech firms to launch full-fledged online lending operations."
"Indian NBFCs permitted fintech companies to piggyback on their licence and execute full-scale lending in their names, in violation of RBI restrictions," the ED claimed.
It said that fintech companies' mobile apps offered "unsecured" fast micro personal loans with terms ranging from 7 to 14 days.
"They used to deduct 15-25 percent of the loan amount as a processing fee at the time of distribution."
"In addition, the interest rate imposed was astronomical. Their apps would also collect cellphone data from customers by granting various access privileges, according to the ED.
They resorted to "harsh recovery" techniques using contact centres in order to earn additional money, it added.
"Personal data of the customers was exploited," the agency claimed, "and calls were made to the customers' friends and relatives, with nasty language used."
"In order to shame the defaulters, social media posts were made against them." Certain persons have committed suicide because they were unable to handle the level of harassment," the report stated.
According to the ED, these apps had a recovery rate of more than 90% and made substantial revenues.
Kudos Finance and Investment Private Limited, one of the accused NBFCs, has MOUs with 39 fintech firms and fraudulently took "security deposits" from them, allowing them to engage in lending activities.
"Despite not having net owned funds of more than Rs 10 crore, this NBFC (really its partner mobile applications) did loan of Rs 2,224 crore in a short period of time, in clear contravention of RBI norms."
"They generated profits of Rs 544 crore for the apps and also earned a commission of Rs 24 crore with the assistance of extortionate call centres," the ED claimed.
These sums are considered "illegal proceeds of crime" and are subject to ED's attachment.
Pavitra Pradip Walvekar, the NBFC's founder, director, and chief executive officer (CEO), was arrested by the CBI in December of last year.
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