Why Did RBI Cancel the Registration of Datta Finance?
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Synopsis
In a shocking move, the RBI has revoked the registration of Datta Finance due to irregular practices in digital lending. This development raises questions about regulatory compliance in the sector, affecting numerous stakeholders. What does this mean for the future of digital lending in India?
Key Takeaways
- RBI revokes Datta Finance's registration due to irregular digital lending practices.
- Violations included outsourcing of critical functions.
- Datta Finance is now prohibited from operating as an NBFI.
- This action emphasizes the importance of regulatory compliance.
- Consumer protection remains a priority for the RBI.
New Delhi, Sep 22 (NationPress) The Reserve Bank of India (RBI) took decisive action on Monday by revoking the certificate of registration (CoR) of Datta Finance and Trading Private Limited, headquartered in New Delhi, due to inconsistencies in its digital lending practices.
According to the central bank, the non-banking financial company (NBFC) breached regulations pertaining to the outsourcing of financial services.
“The CoR has been rescinded by the RBI because the NBFC contravened guidelines on the code of conduct regarding the outsourcing of financial services in its digital lending operations,” the RBI stated.
The investigation revealed that the company was outsourcing its essential decision-making operations to third-party service providers, which is in violation of RBI regulations.
“The company defaulted on the norms by outsourcing critical decision-making tasks such as customer sourcing, conducting due diligence, loan disbursement, loan servicing and recovery, as well as KYC verification to the service provider,” the RBI elaborated.
Datta Finance had permitted third-party applications, including KinCash and DoLoan (managed by Zest Top One Technology Private Limited), along with its proprietary app ZestCash, to execute significant functions.
“These responsibilities encompassed customer sourcing, due diligence, loan disbursement, loan servicing and recovery, along with executing KYC verification,” the RBI noted.
The RBI emphasized that outsourcing such pivotal activities contravenes the established code of conduct for digital lending.
With the cancellation of its registration, Datta Finance and Trading Private Limited will no longer be permitted to operate as a non-banking financial institution (NBFI), the RBI confirmed.
Earlier this year, the central bank also annulled the license of The Karwar Urban Co-operative Bank Ltd in Karnataka, citing insufficient capital and earnings potential.
“The Karwar Urban Co-operative Bank Ltd., Karwar, is now barred from engaging in ‘banking’ activities, including the acceptance and repayment of deposits, effective immediately,” the RBI order stated in July.
Point of View
This decisive action by the RBI underscores the importance of stringent regulatory frameworks in the financial sector. The move not only protects consumers but also reinstates trust in financial institutions. It highlights the need for all NBFCs to adhere strictly to established guidelines to maintain their operational legitimacy.
NationPress
22/09/2025
Frequently Asked Questions
Why did the RBI cancel Datta Finance's registration?
The RBI cancelled Datta Finance's registration due to violations of guidelines related to the outsourcing of financial services in its digital lending operations.
What are the consequences for Datta Finance?
With the cancellation of its registration, Datta Finance and Trading Private Limited is prohibited from operating as a non-banking financial institution (NBFI).
What practices were found to be irregular?
The company was found to be outsourcing critical decision-making functions such as customer sourcing, loan disbursement, and KYC verification, which violates RBI regulations.
Has the RBI taken similar actions against other institutions?
Yes, earlier this year, the RBI cancelled the license of The Karwar Urban Co-operative Bank Ltd for inadequate capital and earning prospects.
How does this affect customers?
This action protects customers from potential risks associated with non-compliant lending practices, ensuring better oversight in the financial sector.
