Hyderabad: The Enforcement Directorate (ED) has arrested the CEO and promoter of Kudos Finance and Investment Private Limited, an NBFC company, under the provisions of the Prevention of Money Laundering Act 2002.
Kudos name surfaced after the company provided licenses to Chinese loan apps.
Pavitra Pradip Walvekar, the CEO of Kudos, was produced before the PMLA special court Hyderabad and remanded to judicial custody for 15 days.
ED has been conducting an investigation against a number of Indian NBFC companies involved in providing instant personal loans via mobile apps. It was revealed that various fintech companies backed by Chinese funds have made agreements with these NBFC companies to provide instant personal microloans of terms ranging from seven to 14 days.
According to the ED, Kudos purportedly engaged fintech (digital lending partners) companies as service providers to assist in identifying prospective customers, verifying their eligibility, collecting information/documents, conducting due diligence, collecting pre-disbursement documents, arranging the execution of the loan agreement, assisting with collections/recovery of principal and interest payments, and attending service requests/product-related queries for the retail loans offered by the company.
Although it was projected that the NBFC had engaged fintech companies for such activities, in reality, they allowed the fintech companies to misuse the valuable NBFC license of Kudos. Kudos was taking huge amounts as "security deposits" and then opening separate merchant ID (MID) with payment gateways for each fintech app and then depositing these security deposits in the MID of the respective fintech app.
Kudos has no mobile app of its own. It is not involved in the lending business at all. It has a minuscule staff and is blindly allowing fintech companies to operate at the back of MOU between self (NBFC) and fintech mobile app companies. Thus, the entire lending operation is being done by the fintech app with its own funds. Kudos is only lending its license and the fintech apps are the ones acting like the real NBFCs and doing end-to-end micro-lending and reaping the majority of the benefits. In return, Kudos is taking a commission without doing any due diligence or hard work, the ED found.
All decisions regarding fixing interest rate, processing fee, and platform fee were taken by the fintech companies and these companies were operating on the basis of instructions from Chinese beneficial owners. They capture customers' data by getting access to their mobile contacts and media. In order to obtain more profits and to maintain a high recovery rate, their call centers resorted to harsh recovery measures by using abusive language.
Unable to bear the harassment, some people even died by suicide. Moreover, at the time of loan disbursal itself, the apps would deduct 15-25% of the amount as processing fee and on the remaining amount, they were charging a very high interest rate. They claimed a loan recovery rate of around 95%.
Fund trail investigation done by ED revealed that despite having net owned fund of only Rs. 10 crore, Kudos circulated loans totalling Rs. 22,24,15,11,508 in its name and it was entirely funded by 39 fintech companies who are now not responding to the summons and have shut shop and are absconding. In the entire business, fintech companies have gained a total profit of around Rs. 544 crore and Kudos has gained a profit of around Rs. 24 crore, the ED said.
Pavitra Pradip Walvekar, the promotor and director of Kudos, holds 86.04% stake in the company and is the de-facto owner. The entire arrangement was in complete violation of the RBI guidelines on NBFCs and thus, the entire profit of Rs. 568 crore is nothing but proceeds of crime, the ED said, adding that the source of funds with the fintech companies is also suspect and is being investigated.
Despite repeated opportunities, Pavitra Pradip Walvekar did not reveal the real identity and beneficial owners of the 39 apps with whom they were in business for more than a year. Instead of cooperating with the investigation, he made active attempts to obstruct the free and fair investigation by trying to intimidate the ED team by using the name of high-ranking political individuals, the ED said.