ED arrests an NBFC CEO in PMLA case, produces before court in Hyderabad

New Delhi: The Enforcement Directorate (ED) on Saturday said it has arrested the CEO of a non-banking financial company (NBFC) in connection with a money laundering investigation against fintech firms backed by Chinese funds. Pavitra Pradip Walvekar, promoter, Director and CEO, Kudos Finance and Investment Private Limited, an NBFC, was taken into custody on Friday. […]

New Delhi: The Enforcement Directorate (ED) on Saturday said it has arrested the CEO of a non-banking financial company (NBFC) in connection with a money laundering investigation against fintech firms backed by Chinese funds.

Pavitra Pradip Walvekar, promoter, Director and CEO, Kudos Finance and Investment Private Limited, an NBFC, was taken into custody on Friday.

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He was later produced before a special Prevention of Money Laundering Act (PMLA) court in Hyderabad that sent him to 15 days’ judicial custody, the agency said in a statement.

The action is linked to the ED’s investigation against a number of Indian NBFCs which are in the business of instant personal loans through mobile apps (applications).

“Various fintech companies backed by Chinese funds have made agreements with these NBFC companies for providing instant personal micro loans of term ranging from seven-14 days,” the statement said.

“Kudos NBFC purportedly engages fintech (digital lending partners) companies as a service provider to assist in identifying prospective customers, verifying their eligibility, collection of information/documents, conducting due diligence, collecting pre-disbursement documents, arranging execution of the loan agreement, assisting with collections/recovery of principal and interest payments and attending service requests or product related queries for the retail loans offered by the company,” the agency said.

Although it is projected that the NBFC is engaging fintech (short for financial technology) companies for these activities, the ED said, “In reality, they are allowing the fintech companies to misuse the valuable NBFC licence of Kudos.”

“Kudos has a paltry net owned fund (NOF), but it is taking huge amount as security deposits and then opening separate merchant ID (MID) with payment gateways for each fintech app and then depositing these security deposit in the MID of the respective fintech app,” the agency alleged.

The company, Kudos, it said, has no mobile app of its own. “It is not involved in the lending business at all. It has miniscule staff and is blindly allowing fintech companies to operate at the back of MoUs between self (NBFC) and fintech mobile app companies.

“Thus, the entire lending operation is being done by the fintech app from its own funds,” it alleged. The accused NBFC is only lending its licence and the fintech apps are the ones acting like the “real NBFCs” and doing end-to-end micro-lending and “reaping “majority benefits”.

“In return, Kudos is taking a commission without doing any due diligence or hardwork,” the ED alleged.

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