Star Finserv Loses NBFC Licence On Rule Violations

The Reserve Bank of India has cancelled the certificates of registration of Progcap-linked Star Finserv India Ltd. and Polytex India Ltd. due to rule violations.

In a notice on Monday, the RBI cancelled the certificates of registration of the two non-banking financial institutions and forbade them from functioning as NBFCs.

Star Finserv has violated RBI guidelines on code of conduct in outsourcing financial services in its digital lending operations by outsourcing its core decision-making functions, such as credit appraisal, loan sanctioning and KYC (know-your-customer) verification process, to the service provider, the banking regulator said.

Star Finserv violated the "confidentiality and security of customer information by providing complete access to customer data to the service provider".

The company has also violated RBI guidelines on the Fair Practices Code by not providing a copy of the loan agreement and sanction letter in the local language to its customers.

Progcap was the service provider to Star Finserv and is backed by marquee investors like Google, Tiger Global and Peak XV Partners. It has raised about $100 million in funding to date.

Queries sent to Star Finserv, Progcap and Polytex did not elicit a response at the time of publishing.

Polytex has also been punished for outsourcing its core decision-making functions and charging predatory interest rates in violation of Fair Practice Code guidelines issued by the RBI.