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Government Invoked Section 69A To Restrict Digital Lending Applications — BQ Exclusive

Two government ministries worked together to block a handful of digital lending applications.

<div class="paragraphs"><p>(Source: Moritz Mentges/Unsplash)</p></div>
(Source: Moritz Mentges/Unsplash)

Two of the government's key ministries worked together to block a handful of fintech lenders from operating in India on concerns surrounding recovery practices and data security, according to two people in the know.

The Ministry of Electronics and Information Technology and the Ministry of Home Affairs together sought to block applications by some fintechs in this regard. The government invoked powers under Section 69A of the Information Technology Act for this, the people quoted above told BQ Prime on the condition of anonymity.

The restrictions surfaced first on Sunday evening via the blocking of 232 apps operated by overseas entities—including those based in China—for being involved in betting, gambling and unauthorised lending.

In some cases, the government has restricted unauthorised replicas of legitimate lending apps, which were operational on little-known app stores such as Apitode, according to the second person quoted above.

The block by the government caused immediate fear in the fintech industry, since most lenders were unaware about why they were being blacklisted. Reports had claimed that the government has also sent a list of lending applications to Google Play Store, seeking their removal. The panic had spread across industry bodies and fintech investors, with some even camping in Delhi till the matter was resolved.

Finally, on Wednesday, government officials invited about 12 of the affected fintech firms for a discussion. Fintech lenders had been asked to submit details such as their current shareholding pattern, data security measures, app security measures, data storage practices, and grievance redressal mechanisms, BQ Prime had reported.

During the meeting, the government appeared receptive to inputs and fintech firms are expecting some respite over the next day or two, according to the first person quoted above.

In a statement on Tuesday, the Ministry of Finance said the RBI had furnished a list of digital lending applications linked to regulated entities to MeitY, which, in turn, has shared the list with the respective intermediary (app stores) and requested them to ensure that only the apps figuring in the list are hosted on their app stores.

Union Minister of State for Finance Bhagwat Karad also said in the Parliament that there were instances of money laundering detected in certain illegal loan applications. The Enforcement Directorate were investigating these cases, the minister said.

"In these cases, the minister stated that as on date, proceeds of crime of Rs 2,116 crore (approx) has been identified, out of which proceeds of crime amounting to Rs 859.15 crore have been attached/seized/freezed under the provisions of PMLA. Further, assets amounting to Rs 289.28 crore have been seized under Section 37A of Foreign Exchange Management Act, 1999," the Ministry of Finance said, in its statement.

Section 69A grants wide-ranging powers to the government and allows it to issue directions for blocking public access of any information through computer resources in certain specific scenarios.

The exact applicability of this law to the blocking of lending apps is "too open-ended a question", NS Nappinai, a cyber law expert and advocate at the Supreme Court of India, told BQ Prime. But certain parts of the operations of such lending operations—such as supposed links to Chinese investors or data security concerns—could extend its applicability to the matter, she said.

Even though, there are ongoing interactions between the restricted lenders and the government regarding the restrictions, the lending platforms and businesses are operating as normal, both the people mentioned earlier said.

This is not the first time that digital lenders are facing sudden action. In January 2021, Google had removed around 200 lending applications from its Play Store after a crackdown on illegal apps. Later, in August 2022, the Reserve Bank of India came out with a set of guidelines for digital lenders, where it stated that lending business can be carried out only by entities that are either regulated by the Reserve Bank or entities permitted to do so under any other law.

These guidelines were based on recommendations by a working group released in November 2021. The RBI's actions came after considerable criticism about digital lending applications and their recovery methods during the Covid-19 pandemic. At the time, many users had complained of coercive recoveries being conducted by some lending applications, leading to serious customer grievances.

(Corrects an earlier version that misstated the Section 69A as Article 69A)