This report details the key aspects of the Reserve Bank of India’s decision to cancel the Certificate of Registration (CoR) of Datta Finance and Trading Private Limited.
1. Key Details
- Entity Name: Datta Finance and Trading Private Limited.
- RBI Action: The Reserve Bank of India (RBI) cancelled the company’s Certificate of Registration (CoR) issued on March 29, 2000.
- Date of Action: September 22, 2025.
- Service Providers: The company was found to be operating through two third-party apps, KinCash and DoLoan, provided by Zest Top One Technology Private Limited, as well as its own in-house app, ZestCash.
- Effect of Cancellation: Following the cancellation, the company is no longer permitted to operate as a Non-Banking Financial Institution (NBFI).
2. Root Cause Analysis (RCA)
The root cause for the cancellation of the CoR was the company’s violation of RBI guidelines on the code of conduct for outsourcing financial services in its digital lending operations. The company improperly outsourced its core decision-making functions to a third-party service provider.
The specific functions that were outsourced included:
- Sourcing of customers.
- Conducting due diligence.
- Disbursement of loans.
- Servicing of loans.
- Recovery of loans.
- Know Your Customer (KYC) verification.
RBI’s guidelines mandate that regulated entities must maintain full control and accountability over these critical functions, as their outsourcing compromises transparency and consumer protection.
3. Preventive Controls
To prevent a similar penalty, any Non-Banking Financial Company (NBFC) engaged in digital lending should implement the following preventive controls:
- Adhere to RBI Guidelines: Strictly follow the RBI’s “Guidelines on Digital Lending,” which emphasize that core lending functions must not be outsourced.
- Retain Core Functions: The NBFC must retain direct control over all core decision-making processes, including customer onboarding, loan approval, and recovery.
- Maintain Accountability: The regulated entity remains fully responsible for all actions of its Lending Service Providers (LSPs). This includes having robust due diligence and monitoring processes for all third-party partners.
- Establish a Grievance Redressal Mechanism: A designated Nodal Grievance Redressal Officer should be in place to handle all FinTech and digital lending-related complaints.
- Ensure Data Privacy and Security: The NBFC must have a transparent privacy policy, collect data with explicit consent, and store all data on servers located in India.
4. Lessons Learned
The cancellation of Datta Finance’s registration serves as a clear warning to other entities in the digital lending space. The key lessons learned are:
- Regulatory Adherence is Paramount: The RBI has a firm stance on enforcing its guidelines, particularly in the rapidly growing digital lending sector. Non-compliance can lead to severe consequences, including the cancellation of operating licenses.
- Responsibility Cannot Be Outsourced: While technology and third-party partnerships can streamline operations, core responsibilities related to lending and customer interaction must be managed directly by the regulated entity.
- Focus on Consumer Protection: The RBI’s actions underscore its commitment to protecting borrowers from potential exploitation and ensuring fair lending practices. Maintaining control over the entire loan life cycle is essential for accountability and safeguarding consumer interests.