Thiruvananthapuram: The Indian government has introduced a new law aimed at curbing unauthorised lending practices and illegal financial transactions, marking a significant step towards regulating the country’s lending sector. The proposed legislation is designed to tackle unauthorised loans, including payday lending, and prevent money laundering activities.

The new law, currently in draft form, is intended to define a clear framework for legitimate lending activities and set standards for authorised lending institutions. As per the law, any moneylender or lender offering loans without approval from the Reserve Bank of India (RBI) or other regulatory agencies will face legal action. It will be a criminal offence to offer loans or charge interest without the necessary authorisation.

The central government has already circulated the draft bill, along with guidelines for its implementation, to state governments for feedback. The legislation stipulates that only recognised financial institutions, which are registered with the central government’s designated data centre, can legally offer loans. The data centre will also serve as a mechanism to help the public verify whether a lending institution is authorised, ensuring transparency in the lending process.

The definition of loans under the law strictly includes transactions where money is lent with an interest charge. The central government is set to issue a notification explaining what constitutes unauthorised lending once the law comes into force.

The draft bill includes provisions to appoint special officers in each state to monitor these cases. Additionally, a special court system will be established for speedy trials, and serious complaints may be referred directly to the Central Bureau of Investigation (CBI) with state government approval, or in urgent cases, even without it.

Penalties for Violations:

Under the new law, individuals or entities found guilty of illegal lending will face imprisonment for a term ranging from two to seven years. Fines will range from ₹200,000 to ₹1 crore.

In cases where pressure or threats are used to recover loans, offenders could face up to ten years in prison. A fine of either ₹500,000 or twice the value of the loan amount will also be imposed.

Entities that offer loans without being registered with the central government, or advertise such illegal loans, will be subject to severe penalties, including imprisonment for up to seven years.

The new legislation is expected to have a significant impact on the growing concerns regarding illegal lending practices, including the exploitation of vulnerable individuals through high-interest loans and fraudulent financial schemes.