By Nikunj Ohri
NEW DELHI (Reuters) – The Indian government is seeking to clamp down on unregulated lending with a proposed law that would impose prison terms of up to seven years and fines for unauthorised loans, including those through digital platforms.
A draft law seen by Reuters follows stepped-up Indian government scrutiny since 2022 on digital lending applications following an increase in complaints about unfair lending and predatory recovery practices for loans made to vulnerable and low-income groups.
According to the draft law, any lending activity except that authorised by the Reserve Bank of India (RBI) and by Indian law, would be banned. Unregulated lending activities would attract a prison term of up to seven years, and a maximum penalty of 10 million rupees ($117,515.72).
The penalties would be even stiffer for unlawful means used to harass and recover funds, with illegal lenders punished with a prison term of up to 10 years, and a penalty as high as twice the loan amount, according to the draft.
The draft law also bars unregulated entities from making any deceptive or false claims persuading people to apply for loans. Offenders would face a prison term of up to five years and a penalty of 1 million rupees.
The government has also proposed an online database that would list regulated lenders and facilitate reporting of illegal lenders.
The draft law was prepared based on the recommendations of a group formed by the RBI to suggest ways to curb unregulated lending practices and protect consumer interests.
The government has sought comments from stakeholders over the proposed bill by Feb. 13, 2025.
($1 = 85.0950 Indian rupees)
(Reporting by Nikunj Ohri; Editing by Frances Kerry)
