As a part of its drive/ campaign and in continuance of steps towards better corporate governance various measures have been taken by the Government from time to time
which includes introduction of:

1. Form DIR 3 KYC (KYC of Directors).
2. MSME Form I for specified companies, which shall include details of all outstanding dues to Micro or small enterprises suppliers.
3. Form DPT-3 to be filed by all the companies except Government Companies.
4. Form Ben 1 to be filed under Significant Beneficial Ownership (Amendment) Rule 2019.
5. Form NFRA – 1 of National Financial Reporting Authority Rules, 2018.

Now, the Government has come up with a new e-Form INC 22A (ACTIVE) which will record the address of the registered office along with a photo of the registered office with the latitude and longitude of the place where registered office is situated.

Ministry of Corporate Affairs introduced an ordinance as Companies (Incorporation) Amendments Rules, 2019 which became effective from February 25, 2019.

This form is applicable for every Company registered on or before the 31st December, 2017 shall file the particulars of the Company and registered office in e-form ACTIVE (Active Tagging and Identities and Verifications) on or before June 15, 2019.

Any company which has not filed its due financial statements under section 137 or due annual returns under section 92 or both with the Registrar shall be restricted from filing e-Form INC 22A (ACTIVE), unless such company is under management dispute and the Registrar has recorded the same on the register and the companies which have been struck off or are under process of striking off or under liquidation or amalgamated or dissolved, as recorded in the register, shall not be required to file e-Form INC 22A(ACTIVE).

The Objectives behind introducing e-Form INC 22A (ACTIVE) were:

1. To identify and monitor through a single form the companies violating various applicable provisions of the Companies Act, 2013 and Rules made thereunder.
2. To enable common public to be aware of KYC status of companies and their directors.
3. Verify and collate all the details which Ministry of Corporate Affairs has about the Companies registered with it.

PURPOSE OF THE E-FORM

Purpose of the form is to identify Shell Companies operating in India and make Corporate Governance more strengthen by complying with Rules and Regulations as prescribed by Ministry. The e-form INC 22A (ACTIVE) will record details pertaining to address of the Registered office along with Photos. By such exercise, it will be easy to find bogus address of shell companies. This is an continuous efforts to clean up the registry, which results into strengthen Corporate Governance and create a transparent and compliant corporate system. This can be Red Alert for Shell Companies.

All the companies which got incorporated on or before 31st Dec 2017 which were under ‘Active’ status as on the date of filing were required to submit particulars in eForm INC-22A (ACTIVE) on or before 25th April, 2019. Further, vide notification dated 25th April, 2019, the last date of filing the e-Form INC 22A was extended up to 15th June, 2019.

In case company does not file e-Form INC-22A within the time limit, Filing of e-Form
shall be allowed with a fee of Rs. 10,000.

COMPANIES (INCORPORATION) AMENDMENT RULES, 2019

The Form INC 22 (Active) owes its existence to Rule 25A Companies (Incorporation) Amendment Rules, 2019. Initially, the Rule governed Form INC 22 dealing with verification of register office.

Rule 25A: Active Company Tagging Identities and Verification (ACTIVE)

(1) Every company incorporated on or before the 31st December, 2017 shall file the particulars of the company and its registered office, in e-Form ACTIVE (Active Company Tagging Identities and Verification) on or before 15.06.2019.

Provided that any company which has not filed its due financial statements under section 137 or due annual returns under section 92 or both with the Registrar shall be restricted from filing e-Form-ACTIVE, unless such company is under management dispute and the Registrar has recorded same on the register:

Provided further that companies which have been struck off or are under process of striking off or under liquidation or amalgamated or dissolved as recorded in the register, shall not be required to file e-Form ACTIVE:

Provided also that in case a company does not intimate the said particulars, the Company shall be marked as “ACTIVE-non-compliant” on or after 15th June, 2019 and shall be liable for action under sub-section (9) of section 12 of the Act:

Provided also that no request for recording the following event based information or changes shall be accepted by the Registrar from such companies marked as “ACTIVE-non-compliant”, unless “e-Form ACTIVE” is filed –

i. SH-07 (Change in Authorized Capital);
ii. PAS-03 (Change in Paid-up Capital);
iii. DIR-12 (Changes in Director except cessation);
iv. INC-22 (Change in Registered Office);
v. INC-28 (Amalgamation, de-merger)

(2) Where a company files “e-Form ACTIVE”, on or after 16th June, 2019, the company shall be marked as “ACTIVE Compliant”, on payment of fee of ten thousand rupees”.

APPLICABILITY AND NON– APPLICABILITY

All companies incorporated on or before 31st of December, 2017 shall file the particulars of the company and the address validation of the registered office in e-Form INC – 22A (ACTIVE) on or before the 15th of June, 2019 with the Registrar.

However, there are certain companies that are exempted from filing this form:
i) Companies incorporated after 01.01.2018.
ii) Companies struck off from the Register.
iii) Companies under the process of strike off.
iv) Companies under amalgamation.
v) Companies under liquidation.
vi) Companies that are dissolved.

PRE-CONDITIONS FOR FILING E-FORM

There are certain prerequisites for filing the following form such as:

1. There shall be a minimum number of directors in the Company i.e the Condition of minimum 2 directors in case of Private Companies and 3 directors in case of Public Companies shall not be breached.
2. In case, the Company has more than the maximum number of directors i.e 15 directors; then the Company shall attach the SRN of MGT-14 form where the resolution has been passed in the Shareholders Meeting for appointing more than the maximum number of directors.
3. SRN of AOC-4 form (filing of financial statements) and MGT-7 form (filing of annual return) of the previous financial year i.e 2017-18.
4. Company with Paid-up Capital of more than 10 crores shall have Key Managerial Personnel under section 203 of Companies Act, 2013.
5. Company with Paid-up Capital of more than 5 crores shall have a Whole Time
   Company Secretary.
6. In case a Company having a director whose status is Disqualified u/s 164(2) of
   Companies Act, 2013, then such Company cannot file the said form.

CONTENTS OF FORM INC 22A (ACTIVE)

Prior to filing INC – 22A, all compliances with regard to the filing of Financial Statements (Section 137) and Annual Returns (Section 92) for the financial year 2017- 18 must be completed by the company.

1. Details of Company

Following details of the Company are required to be filed in the form:

a. CIN (Corporate Identification Number)

The CIN can be obtained from the Certificate of Incorporation issued to the company.

b. Name of the Company

c. Address of registered office of the Company

Address of the registered office which is registered with the MCA is required to be mentioned.

d. Latitude and Longitude

Latitude and Longitude of the Registered Office is required to trace the location of place of Registered Office at ease.

e. Email ID of the Company

Valid Email address of the Company is required to be mentioned so that OTP (One Time Password) can be ascertained.

f. Type of Company – whether the Company is listed or unlisted.

2. Details of Directors

This discloses total number of directors of the company.

All companies except Section 8 and Government Companies can appoint maximum 15 directors. Number of directors in excess of specified limit can be appointed by passing Special Resolution at Shareholders’ Meeting.

In case the maximum number of directors are beyond the limits prescribed under the Companies Act, 2013, then we are required to mention the date of resolution vide which the directors are appointed beyond the prescribed limit and the SRN number of Form MGT – 14 filed with Registrar of the Companies (RoC) through which such directors are appointed beyond the limits specified.

The list of Directors as on the date of filing includes the DIN (Director Identification Number), Name of all the directors and Status of DIN.

Status of DIN of all the directors indicates whether the DIN is in approved status, i.e., whether Form DIR – 3 KYC has been submitted by the concerned director or not. If any of the directors has not filed Form DIR – KYC as on the date of filing, the status of the DIN would be ‘De-activated due to non-filing of DIR – 3 KYC’ or ‘Disqualified under Section 164(2)’.

3. Details of Statutory Auditors

It includes total number of Statutory Auditors appointed by the company along with
the following details:
a. Category of Auditor – Individual or Audit Firm.
b. Income tax permanent account number of auditor or auditor’s firm.
c. Name of the auditor or auditor’s firm.
d. Membership number of auditor or auditor’s firm’s registration number.
e. Period of account for which appointed as statutory auditor.

4. Details of Cost Auditors

Whether the company is required to appoint cost auditors? If yes, following information is required to be filed:

a. Membership number of the cost auditor / member representing the Cost auditor’s firm / LLP.

b. Name of the cost auditor or member representing cost audit firm / LLP.

c. Firms Registration Number (FRN).

d. Name of cost auditor’s firm/LLP.

e. Financial year to be covered by the cost auditor so appointed.

5. Details of Managing Director or Chief Executive Officer or Manager or Whole Time Director

Total number of roles along with DIN / PAN, Name and Designation of the person, if any, appointed as Managing Director or Chief Executive Officer or Manager or Whole Time Director of the company will be entered.

Applicability: Company which is listed company or public company having a paid-up share
capital of ten crore rupees or more is required to appoint managing director or Chief Executive Officer or manager and in their absence, a whole-time director.

6. Details of the Company Secretary

If the company is required to appoint the Company Secretary, following details will
be required –
a. PAN
b. Name
c. Membership Number

Applicability: In case company is listed or public company having a paid-up share capital of
ten crore rupees or more or company having paid up share capital of five crore rupees or more is required to appoint whole time company secretary.

7. Details of Chief Financial officer

In case of appointment of Chief Financial Officer (CFO), if applicable, following details are required –
a. PAN
b. Name

Applicability: In case company is listed company or public company having a paid-up share
capital of ten crore rupees or more is required to appoint CFO.

8. Details of Form AOC 4/ AOC 4 XBRL and MGT 7

a. SRN of Form AOC 4 / AOC 4 XBRL filed for financial year 2017-18
b. SRN of Form MGT 7 filed for financial year 2017-18

9. Attachments

The following attachment is mandatory to be filed in all cases:
 Photograph of Registered Office showing external building and inside office
also showing therein at least one director/KMP who has affixed his/her Digital
Signature to this form.
 Optional attachments, if any.

10. Declaration

Declaration is given by the Directors or KMP authorised to digitally sign the form which states that –

“I hereby declare that the registered office is situated in the address mentioned above, the
details of directors, KMP, auditors are presently associated with the company are correct.”

11. Verification

Directors or KMP authorized to digitally sign this form also gives confirmation and verification on the particulars of the form and maintenance of documents which states that –
“I, hereby confirm and verify that the particulars given in the Form herein above are true
and also in agreement with the documents maintained by the Company.”

12. Certification

The Form is digitally signed by a Chartered Accountant/ Cost Accountant or a Company Secretary in whole-time practice after confirming that they have been duly engaged for the purpose of certification / verification of the Form.

PROCEDURE

1. Enter a valid CIN

You may find CIN by entering existing registration number or name of the company
in the ‘Find CIN’ service available under the menu of MCA services on the MCA
website.

2. Click the Pre-fill button

Click the Pre-fill button. System will automatically display the name, address of the
registered office, listed flag and the email ID of the company.
In case there is any change in the email ID, enter the new valid email ID.

3. Latitude and Longitude

Please entre latitude and longitude of the registered office address of the Company,
which shall be obtained using maps.

4. Number of directors

System will automatically Pre-fill it along with list of directors as on date of filing. Company is required to ensure that the company has minimum number of directors and DIN of all directors are in approved status.

In case of number of directors are beyond the limits, please specify the Date of Resolution passed and SRN of MGT – 14 filed with RoC for such resolution.

5. Details of Statutory auditor

System will automatically “Pre-fill” it based on the information provided in latest Form ADT-1 filed with the ROC.

6. Details of Cost Auditor

If the appointment of Cost Auditor is applicable, please select “Yes”. It will be also Pre-filled by System based on the information provided in latest Form CRA – 2 filed with RoC. But, if “Yes” is selected and no information is filled regarding appointment of cost auditor, filing of Form INC-22A shall not be allowed. Any company on which Cost audit is mandatory and has appointed Cost Auditor but has not filled Form CRA – 2, will be first required to file Form CRA – 2. After filing Form CRA – 2, filing of Form INC 22A will be allowed.

7. Details of MD/CEO/Manager/WTD

System will automatically prefill all details, if applicable.

8. Details of Company Secretary

System will automatically prefill all details, if applicable.

9. Details of CFO

System will automatically prefill all details, if applicable.

10. Details of forms AOC-4/AOC-4 XBRL and MGT 7

System will automatically prefill all details. Again if the company, in case, has not filed the above mentioned forms for the financial year 2017-18, than first forms AOC4/AOC-4 XBRL and MGT 7 are required to be filed and after that Form INC-22A can be filed.

11. Attachment

Photograph of registered office showing both external building and inside office along with the at least One Director / KMP who would be affixing his/her digital signature in the form.

12. Sign

 In case of One Person Company (OPC) – form shall be signed by one director, and
 In case of other companies – form shall be signed by one director and one KMP or two directors.

Before that person should registered his/her DSC with MCA,if not registered. Disqualified directors are not allowed to sign the form.

If e-form is digitally signed by Director please enter DIN and in case e-form is digitally
signed by CFO/CEO/Manager please enter PAN. If e-form is digitally signed by Company Secretary in case of Section 8 company please enter membership number /PAN and in case of other companies please enter membership number.

13. Certification

At last e-form shall be certified by Chartered Accountant/Cost Accountant/Company Secretary in whole -time practice with digital signature.

14. Send OTP

This button will be enabled only after successful Pre-scrutiny of the form. Click on this
button to send OTP to your email ID.

Please note that OTP can be successfully sent to the email ID against one form, for a
maximum of 10 times in one day.

OTP shall be valid for a span of 30 minutes.

Enter the OTP received on registered email ID in the form and then click on Verify OTP button which will verify the OPT entered. After verifying the OTP upload the form on MCA website.

CERTIFICATION BY A PRACTICING PROFESSIONAL

The form shall be certified by a Practicing Professional, it can be a Chartered Accountant, Company Secretary or a Cost Accountant (CMA). The said professional has to put its Membership number and Certificate of Practicing Number (COP) to verify the form.

However, there are various declaration which a Practicing Professional has to certify
which are as follows:

i) I have satisfied myself about the identity of the company and its address based on the perusal of the original of the attached document.

ii) All required attachments have been completely attached to this application.

iii) I have gone through the provisions of The Companies Act, 2013 and rules thereunder for the subject matter of this form and matters incidental thereto and I have verified the above particulars [including attachment(s)] from the original records maintained by the Company/applicant which is the subject matter of this form and found them to be true, correct and complete and no information material to this form has been suppressed.

iv) email ID belong to the Company.

v) All the required attachments have been completely and legibly attached to this form.

vi) I have kept a copy of this form and attachments thereto, in my records for further reference.

vii) It is understood that I shall be liable for action under Section 448 of The Companies Act, 2013 for wrong certifications, if any found at any stage.

The implication of certifying false declarations are very serious as the Practicing Professionals shall be held liable under Section 448 of Companies Act, 2013 which says; any return, report, certificate, financial statement, prospectus, statement or other document required by, or for, the purposes of any of the provisions of this Act or the rules made thereunder, any person makes a statement:

1. which is false in any material particulars, knowing it to be false; or
2. which omits any material fact, knowing it to be material.

He/she shall be liable under section 447.

Hence, the Practicing Professionals should verify all the details and information provided in the form before certifying the same.

PRACTICAL DIFFICULTIES WHILE FILING E-FORM

This has reference to the meeting of ICSI on 15th March, 2019 and the Webinars conducted on 7th March, 2019 and 26th March, 2019 wherein officials of the Ministry
had addressed the stakeholders regarding introduction of the initiative to Tag Identities and Verify Active Companies through the Companies (Incorporation) Amendment Rules, 2019 in e-Form ACTIVE (Active Company Tagging Identities and Verification) on or before 15.06.2019.

Every attempt is being made for smoothening the path leading towards the success of
this initiative, yet a few issues remain unresolved and the same shall require the assistance of your good office for their elimination.

In this regard, following are the practical difficulties received from the stakeholders seeking for redressal:

Issues and Solution –

1. Compliance by Dormant Companies

For dormant companies, while filing e-form INC-22A, the status of CIN entered is shown as ‘Dormant under section 455’ further stating that the form cannot be filed for this status.
However, under the rule, Dormant Companies have not been included in the list of companies exempted from filing of INC 22A.

Solution:
As per MCA clarification. Dormant Companies need not file Form INC-22a. However, companies who have filed form STK-2 with ROC and their status is showing “under process strike off” such Companies have to file form INC-22A.

2. Details of Statutory Auditor not pre filling

During the period from 1st April, 2014 to 20th October, 2014 many companies have filed
return of Appointment of Auditor in form ADT-1 as an attachment to form GNL-2 because during the initial days of its introduction in 2014, Form ADT-1 was a physical form. Since e-form INC-22A does not allow filling details of Auditor or SRN manually and also there was no interlinking between form GNL-2 and ADT-1 , details of auditor was not pre fill.

Solution:
Based on feedback received from stakeholders who were unable to file e-form ACTIVE as they had filed ADT-1 forms for appointment of auditors for the period from 2014-15 to 2018-19 as an attachment with GNL-2 e-form during the period from 01/04/2014 to 20/10/2014 (due to non-availability of e-form ADT-1 during that period), it has now been decided to permit re-filing of ADT-1 to such companies for the said period (up to 2018-19), with ‘fee relaxation’ (normal fee and additional fee).

Stakeholders, in such cases, may download the latest ADT-1 e-form available on the portal and refile details of the Auditor’s appointment for the said period duly choosing ‘To’ period of appointment date as a date on or before ‘31st March 2019’.

Once ADT-1 is re-filed in such cases and duly approved, the details of Auditors would get pre-filled in the ACTIVE form. However, those stakeholders who had filed details of auditors appointment in e-form GNL-2 even after 20th October 2014 (though e-form ADT-1 had been deployed on 20/10/2014) no fee relaxation would be available for them.

3. Companies in Management Disputes

Solution
First Proviso to Rule 25A reads that any company which has not filed its financial statements under section 137 or annual returns under section 92 or both with the Registrar shall be restricted from filing e-Form ACTIVE, unless such company is under management dispute and the Registrar has recorded the same on the register.

However, for any company to be marked as being under ‘Management dispute’, the same needs to be ordered by NCLT or High Court, which is a time-consuming process and may extend beyond the due date of this form.

4. Details of forms AOC-4/ AOC-4 XBRL and MGT-7 filed for FY 2017-18 not prefill

Issues are being faced by corporates having different financial year, i.e., other than 1st April to 31st March. SRNs of forms for such companies are not being pre-filled automatically. For example, a Company has financial year from January to December, so for such Companies details of financial statement for the year ended March, 2018 is not prefill as the Companies have filled financial statement for the year ended 31st December, 2017.

Solution:
For the Companies having different financial year, such Companies have to take exemption under section 2(41) from CLB or NCLT for the financial year mentioned above. In such case MCA will check the case individually and will give exception and allow such companies to file the form INC-22a. However the Companies who have not taken approval from CLB or NCLT for different financial year, have to comply with standard financial year.

5. Can more than one Company have same registered office?

Solution:
As per MCA clarification, 1 or more Companies can have same registered office.

6. Appointment of KMP

As per Section 203 of the Companies Act, 2013, every company belonging to such class
or classes of companies as may be prescribed shall have the following whole-time key
managerial personnel,

i. Managing Director, or Chief Executive Officer or Manager and in their absence,

ii. a Whole-Time Director;

iii. Company Secretary; and

iv. Chief Financial Officer

If the office of any whole-time key managerial personnel is vacated, the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of six months from the date of such vacancy.

Solution:
If Company have to file Form INC-22a, then as one of the pre requisite Company has to appoint KMP in the Company. However as per MCA clarification, applicable companies compulsorily need to have a KMP as on the date of filing irrespective of the time period allowed under the Act.

7. Companies having same registered office can have one Name Board?

Solution:
As per MCA clarification, Companies having same registered office can have one Name Board as long as they are fulfilling provision of Section 12 with respect to registered office of the Company.

8. Resignation of Auditor

Many Companies have filed form ADT-3 for resignation of auditor and also filed ADT-1 for appointment of new Auditor. But same was not captured in the form INC22A, as still details for old Auditor was pre fill in the form.

Solution:
Query can be raised with MCA for this or else Company can file form INC-22A with clarification letter stating that INC-22A is capturing the details of old auditor though
Form ADT-1 has been filed for appointment of new auditor. Company can also attach
Challan copy of form ADT-1 filed for the appointment of new auditor

CONSEQUENCES OF NON-FILING

 In case a company does not intimate the said particulars, the Company shall be marked as “ACTIVE-non-compliant” on or after 26th April, 2019 and shall be liable for action under sub-section (9) of section 12 of the Act.

 If any default is made in complying with the requirements of this section, the company and every officer who is in default shall be liable to a penalty of one thousand rupees for every day during which the default continues but not exceeding one lakh rupees.

 If the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may cause a physical verification of the registered office of the company in such manner as may be prescribed and if any default is found to be made in complying with the requirements of subsection (1), he may without prejudice to the provisions of sub-section (8), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII.

 No request for recording the following event-based information or changes shall be accepted by the Registrar from such companies marked as “ACTIVEnon-compliant”, unless “e-Form ACTIVE” is filed –

1. SH-07 (Change in Authorized Capital);
2. PAS-03 (Change in Paid-up Capital);
3. DIR-12 (Changes in Director except cessation);
4. INC-22 (Change in Registered Office); and
5. INC-28 (Amalgamation, de-merger)

 Where a company files “e-Form ACTIVE”, on or after 26th April, 2019, the company shall be marked as “ACTIVE Compliant”, on payment of fee of ten thousand rupees”.

As per notification dated May 16, 2019;
 where a company governed by Rule 25A of the Companies (Incorporation) Rules, 2014, fails to file the e-form ACTIVE within the period specified therein, the Director Identification Number (DIN) allotted to its existing directors, shall be marked as “Director of ACTIVE non-compliant company”.
 where the DIN of a director has been marked as “Director of ACTIVE noncompliant company”, such director shall take all necessary steps to ensure that all companies governed by rule 25A of the Companies (Incorporation) Rules, 2014, where such director has been so appointed, file e-form ACTIVE. After all the companies referred to in sub-rule

(2) file the e-form ACTIVE, the DIN of such director shall be marked as “Director of ACTIVE compliant company”.

FEES FOR FILING E-FORM INC – 22A

CONCLUSION

• Despite the practical difficulties which are hindering the compliance of ACTIVE Form, MCA is trying to identify and monitor the Companies who are violating various applicable provisions of Companies Act, 2013.
• The motive of MCA to introduce ACTIVE Form is to bar scam companies who does not have proper registered office or companies lagging behind with major annual compliances. The intent of the said form is to curb the shell companies which are existing only on papers and to improve the standard of Compliances.
• We as Company Secretaries and Compliance Officers must ensure that the Companies adhere to the said form and raise the standards of Compliance which shall bring transparency in the Governance of Companies. Also, the Companies shall comply with the rules in true letter and spirit.

The following were referred for the preparation of the article…
1. MCA ebook
2. INC-22A_ACTIVE_ Help
3. Webinar on INC-22A

Scope of Application for Digital Lending: These guidelines are applicable to digital lending extended by:

• • All Commercial Banks,
  • Primary (Urban) Co-operative Banks,
  • State Co-operative Banks,
  • District Central Co-operative Banks; and
  • Non-Banking Financial Companies (including Housing Finance Companies)

Definitions

1. Annual Percentage Rate (APR):It is the effective annualized rate charged to the borrower of a digital loan. It shall be based on an all-inclusive cost and margin including cost of funds, credit cost and operating cost, processing fee, verification charges, maintenance charges, etc. It excludes contingent charges like penal charges, late payment charges, etc.

2. Cooling off/look-up period:A cooling off/ look-up period is the time window as determined by the Board of the RE which shall be given to borrowers for exiting digital loans, in case a borrower decides not to continue with the loan.

3. Digital Lending:A remote and automated lending process, largely by use of seamless digital technologies for customer acquisition, credit assessment, loan approval, disbursement, recovery, and associated customer service.

4. Digital Lending Apps/Platforms (DLAs):Mobile and web-based applications with user interface that facilitate digital lending services. DLAs will include apps of the Regulated Entities (REs) as well as those operated by Lending Service Providers (LSPs) engaged by REs for extending any credit facilitation services in conformity with extant outsourcing guidelines issued by the Reserve Bank.

5. Lending Service Provider (LSP):An agent of a Regulated Entity who carries out one or more of lender’s functions or part thereof in customer acquisition, underwriting support, pricing support, servicing, monitoring, recovery of specific loan or loan portfolio on behalf of REs in conformity with extant outsourcing guidelines issued by the Reserve Bank.

6. Regulated Entities (REs):The entities to whom this circular is applicable as stated at Para 1 of these guidelines.

A. Customer Protection and Conduct requirements

Loan Disbursal, Servicing and Repayment REs shall ensure that all loan servicing, repayment, etc., shall be executed by the borrower directly in the RE’s bank account without any pass-through account/ pool account of any third party. The disbursements shall always be made into the bank account of the borrower except for disbursals covered exclusively under statutory or regulatory mandate (of RBI or of any other regulator), flow of money between REs for co-lending transactions² and disbursals for specific end use, provided the loan is disbursed directly into the bank account of the end-beneficiary. REs shall ensure that in no case, disbursal is made to a third-party account, including the accounts of LSPs and their DLAs, except as provided for in these guidelines.

Collection of fees, charges, etc.

Payment of Fees/Charges: REs shall ensure that any fees, charges, etc., payable to LSPs are paid directly by them (REs) and are not charged by LSP to the borrower directly.

Penal Interest/ Charges: The penal interest/charges levied, if any, on the borrowers shall be based on the outstanding amount of the loan. Further, rate of such penal charges shall be disclosed upfront on an annualized basis to the borrower in the Key Fact Statement (KFS).

Disclosures to borrowers

Annual Percentage Rate  APR as all-inclusive cost of digital loans for the borrower shall be disclosed upfront by REs and shall also be a part of the Key Fact Statement.

Key Fact Statement

1. 1. 1. REs shall provide a Key Fact Statement (KFS) to the borrower before the execution of the contract in a standardized format for all digital lending products. The format of KFS is provided in Annex-II.
      2. The KFS shall, apart from other necessary information, contain the details of APR, the recovery mechanism, details of grievance redressal officer designated specifically to deal with digital lending/ FinTech related matter and the cooling-off/ look-up period.
      3. Any fees, charges, etc., which are not mentioned in the KFS cannot be charged by the REs to the borrower at any stage during the term of the loan.

• • • Digitally signed documents REs shall ensure that digitally signed documents (on the letter head of the RE) viz., KFS, summary of loan product, sanction letter, terms and conditions, account statements, privacy policies of the LSPs/DLAs with respect to borrowers data, etc. shall automatically flow to the borrowers on their registered and verified email/ SMS upon execution of the loan contract/ transactions.
    • List of LSPs REs shall prominently publish the list of their DLAs, LSPs engaged by them and DLAs of such LSPs with the details of the activities for which they have been engaged, on their website.
    • Product information REs shall ensure that their DLAs or DLAs of their LSPs at on-boarding/sign-up stage, prominently display information relating to the product features, loan limit and cost, etc., so as to make the borrowers aware of these aspects.
    • Details of recovery agent REs shall communicate to the borrower, at the time of sanctioning of the loan and also at the time of passing on the recovery responsibilities to an LSP or change in the LSP responsible for recovery, the details of the LSP acting as recovery agent who is authorised to approach the borrower for recovery.
    • Link to website REs shall ensure that DLAs of REs and LSPs have links to REs’ website where further/ detailed information about the loan products, the lender, the LSP, particulars of customer care, link to Sachet Portal, privacy policies, etc. can be accessed by the borrowers. It shall be ensured that all such details are available at a prominent single place on the website for ease of accessibility.

Grievance Redressal

1. Nodal grievance redressal officer REs shall ensure that they and the LSPs engaged by them shall have a suitable nodal grievance redressal officer to deal with FinTech/ digital lending related complaints/ issues raised by the borrowers. Such grievance redressal officer shall also deal with complaints against their respective DLAs. Contact details of grievance redressal officers shall be prominently displayed on the websites of the RE, its LSPs and on DLAs and also in the KFS provided to the borrower. Further, the facility of lodging complaint shall also be made available on the DLA and on the website as stated above. It is reiterated that responsibility of grievance redressal shall continue to remain with the RE.

2. Complaint Lodged If any complaint lodged by the borrower against RE or the LSP engaged by the RE is not resolved by the RE within the stipulated period (currently 30 days), he/she can lodge a complaint over the Complaint Management System portal under the Reserve Bank-Integrated Ombudsman Scheme. For entities currently not covered under RB-IOS, complaint may be lodged as per the grievance redressal mechanism prescribed by the Reserve Bank.

B. Assessing the borrower’s creditworthiness

1. 1. REs shall capture the economic profile of the borrowers covering (age, occupation, income, etc.), before extending any loan over their own DLAs and/or through LSPs engaged by them, with a view to assessing the borrower’s creditworthiness in an auditable way.
   2. REs shall ensure that there is no automatic increase in credit limit unless explicit consent of borrower is taken on record for each such increase.

Cooling off/look-up period A borrower shall be given an explicit option to exit digital loan by paying the principal and the proportionate APR without any penalty during this period. The cooling off period shall be determined by the Board of the RE. The period so determined shall not be less than three days for loans having tenor of seven days or more and one day for loans having tenor of less than seven days. For borrowers continuing with the loan even after look-up period, pre-payment shall continue to be allowed as per extant RBI guidelines.

Due diligence and other requirements with respect to LSPs

• • REs must conduct enhanced due diligence before entering into a partnership with a LSP for digital lending, taking into account its technical abilities, data privacy policies and storage systems, fairness in conduct with borrowers and ability to comply with regulations and statutes.
  • REs shall carry out periodic review of the conduct of the LSPs engaged by them.
  • REs shall impart necessary guidance to LSPs acting as recovery agents to discharge their duties responsibly and ensure that they comply with the extant instructions in this regard.

Technology and Data Requirement

Collection, usage and sharing of data with third parties

• • • REs shall ensure that any collection of data by their DLAs and DLAs of their LSPs is need-based and with prior and explicit consent of the borrower having audit trail. In any case, REs shall also ensure that DLAs desist from accessing mobile phone resources like file and media, contact list, call logs, telephony functions, etc. A one-time access can be taken for camera, microphone, location or any other facility necessary for the purpose of on-boarding/ KYC requirements only, with the explicit consent of the borrower.
    • The borrower shall be provided with an option to give or deny consent for use of specific data, restrict disclosure to third parties, data retention, revoke consent already granted to collect personal data and if required, make the app delete/ forget the data.
    • The purpose of obtaining borrowers’ consent needs to be disclosed at each stage of interface with the borrowers.
    • Explicit consent of the borrower shall be taken before sharing personal information with any third party, except for cases where such sharing is required as per statutory or regulatory requirement.

Storage of data

• • • REs shall ensure that LSPs/DLAs engaged by them do not store personal information of borrowers except some basic minimal data (viz., name, address, contact details of the customer, etc.) that may be required to carry out their operations. Responsibility regarding data privacy and security of the customer’s personal information will be that of the RE.
    • REs shall ensure that clear policy guidelines regarding the storage of customer data including the type of data that can be stored, the length of time for which data can be stored, restrictions on the use of data, data destruction protocol, standards for handling security breach, etc., are put in place and also disclosed by DLAs of the REs and of the LSP engaged by the RE prominently on their website and the apps at all times.
    • REs shall ensure that no biometric data is stored/ collected in the systems associated with the DLA of REs/ their LSPs, unless allowed under extant statutory guidelines.
    • REs shall ensure that all data is stored only in servers located within India, while ensuring compliance with statutory obligations/ regulatory instructions.

Comprehensive privacy policy

• • • REs shall ensure that their DLAs and LSPs engaged by them have a comprehensive privacy policy compliant with applicable laws, associated regulations and RBI guidelines. For access and collection of personal information of borrowers, DLAs of REs/LSPs should make the comprehensive privacy policy available publicly.
    • Details of third parties (where applicable) allowed to collect personal information through the DLA shall also be disclosed in the privacy policy.

Technology standards REs shall ensure that they and the LSPs engaged by them comply with various technology standards/ requirements on cybersecurity stipulated by RBI and other agencies, or as may be specified from time to time, for undertaking digital lending.

C. Regulatory Framework

Reporting to Credit Information Companies (CICs)

• • As per the provisions of the Credit Information Companies (Regulation) Act, 2005; CIC Rules, 2006; CIC Regulations, 2006 and related guidelines issued by RBI from time to time, REs shall ensure that any lending done through their DLAs and/or DLAs of LSPs is reported to CICs irrespective of its nature/ tenor.
  • Extension of structured digital lending products by REs and/or LSPs engaged by REs over a merchant platform involving short term, unsecured/ secured credits or deferred payments, need to be reported to CICs by the REs. REs shall ensure that LSPs, if any, associated with such deferred payment credit products shall abide by the extant outsourcing guidelines issued by the Reserve Bank and be guided by these guidelines.

 Loss sharing arrangement in case of default:

As regards the industry practice of offering financial products involving contractual agreements such as First Loss Default Guarantee in which a third party guarantees to compensate up to a certain percentage of default in a loan portfolio of the RE, it is advised that REs shall adhere to the provisions of the Master Direction – Reserve Bank of India (Securitization of Standard Assets) Directions, 2021 dated September 24, 2021, especially, synthetic securitization contained in Para (6)(c).

Conclusion: A reference is invited to para 7 of the RBI Press Release “Recommendations of the Working Group on Digital Lending – Implementation” dated August 10, 2022. Detailed guidelines on recommendations of the Working Group accepted for immediate implementation are attached as Annex I to this circular.

Reiterated It is reiterated that outsourcing arrangements entered by Regulated Entities with a Lending Service Provider/ Digital Lending App does not diminish the REs’ obligations. And they shall continue to conform to the extant guidelines on outsourcing. The REs are advised to ensure that the LSPs engaged by them and the DLAs (either of the RE or of the LSP engaged by the RE) comply with the guidelines contained in this circular.

Applicable It is further advised that the instructions contained in this circular shall be applicable to the ‘existing customers availing fresh loans’. And to ‘new customers getting onboarded’, from the date of this circular. However, in order to ensure a smooth transition, REs shall be given time till November 30, 2022. To put in place adequate systems and processes to ensure that ‘existing digital loans’ are also in compliance with these guidelines in both letter and spirit.

Issued These directions are issued under sections 21, 35A and 56 of the Banking Regulation Act, 1949, sections 45JA, 45L and 45M of the Reserve Bank of India Act, 1934, sections 30A and 32 of the National Housing Bank Act, 1987, section 6 of the Factoring Regulation Act, 2011 and section 11 of the Credit Information Companies (Regulation) Act, 2005.

Important Link

Minority communities define by the Government of India, Ministry of Minority Affairs are Sikhs, Muslims, Christians, Zoroastrians, Buddhists and Jains. The Reserve Bank of India has periodically issued guidelines/instructions/directives to banks with regard to providing credit facilities to Minority Communities.

Credit Facilities to Minority Communities:

• In order to ensure that minority communities secure, in a fair and adequate measure, the benefits flowing from various Government sponsored schemes, Scheduled Commercial Banks (referred to as ‘banks’ hereafter) are advised to ensure smooth flow of bank credit to minority communities.
• Government of India has forwarded a list of 121 minority concentration districts having at least 25% minority population (Annexure I), excluding those States/UTs where minorities are in majority (Jammu & Kashmir, Punjab, Meghalaya, Mizoram, Nagaland and Lakshadweep).

Accordingly, banks are advised to specially monitor the credit flow to minorities in these 121 districts thereby, ensuring that the minority communities receive a fair and equitable portion of the credit within the overall target of the priority sector

• In terms of Reserve Bank’s Master Direction on Priority Sector Lending (PSL) dated September 04, 2020 (as updated from time to time), a target of 40 percent of Adjusted Net Bank Credit or Credit Equivalent amount of Off-Balance Sheet Exposures (OBE), whichever is higher, as on March 31 of the previous year, has been mandated for lending to the priority sector by domestic scheduled commercial banks and foreign banks;
  • for Small Finance Banks the target is 75% of their Adjusted Net Bank Credit (ANBC). Within this,
  • a sub-target of 11.5 per cent of ANBC or Credit Equivalent amount of OBE, whichever is higher,
  • as on March 31 of the previous year, has been mandated for FY: 2022-23 for lending to weaker sections which includes, among others, persons from minority communities.

Definition of Minority Communities

Minority communities define by the Government of India, Ministry of Minority Affairs are Sikhs, Muslims, Christians, Zoroastrians, Buddhists and Jains.

In the case of a partnership firm, if the majority of the partners belong to one or the other of the specified minority communities, advances granted to such partnership firms may be treated as advances granted to minority communities.

Further, if the majority beneficial ownership in a partnership firm belongs to the minority community, then such lending can be classified as advances to the specified communities. A company is a separate legal entity and hence advances granted to it cannot be classified as advances to the specified minority communities.

Creation of Special Cell and designating an exclusive Officer

set up a special cell having a Nodal Officer

Each bank should set up a special cell having a Nodal Officer holding the rank of Deputy General Manager/Assistant General Manager or any other similar rank, in order to ensure smooth flow of credit to minority communities.

minority concentration districts should have an officer

The Lead Bank in each of the minority concentration districts should have an officer who shall exclusively look after the problems regarding the credit flow to minority communities.

It shall be his/her responsibility to publicize among the minority communities various programmes of bank credit and also to prepare suitable schemes for their benefit in collaboration with branch managers.

Designated Officer

The designated officer should exclusively look after aspects relating to credit assistance to minority communities in the concerned districts.

The designated officer may be attached to the Lead Bank set up at the district level so as to receive necessary guidance from Lead District Manager, who will be senior enough and have adequate experience for liaising effectively with the other credit institutions and Government agencies and will also be working in close collaboration with the branch managers of other banks in the district.

The designated officer will also arrange group meetings for their guidance for formulation of schemes suitable for the members of the minority communities.

Banks concerned may ensure that the role assigned to the designated officer/s is effectively fulfilled.

The name, designation and office address of

(i) the officer-in-charge of the Special Cell at Head Office and

(ii) officer appointed by lead banks in the identified districts

to look after the problems of minority communities exclusively, should be furnished by banks to the National Commission for Minorities and updated periodically.

A copy of the relevant communication may also be furnished to The Chief General Manager, Financial Inclusion and Development Department, Reserve Bank of India, SBS Marg, Fort, Central Office, Mumbai 400001.

Role of Lead Banks

1. Lead Banks of the Minority Concentration Districts will have to exercise the pro-active role expected of them to ensure that the minority communities, particularly those who are poor and illiterate have access to bank credit for taking up productive activities.
2. The Lead Banks in the 121 identified districts having concentration of minority communities may involve the State Minority Commission/Finance Corporation in the extension work including creating awareness, identification of beneficiaries, preparation of viable projects, provision of backward and forward linkages such as supply of inputs/marketing, recovery etc.
3. They may collaborate with District Development Managers (DDMs) of NABARD/NGOs/Voluntary Organizations in reaching the poor through Self Help Groups (SHGs).
4. The Convenor banks of the District Consultative Committees (DCCs), District Level Review Committees (DLRCs) and the State Level Bankers Committees (SLBCs) should ensure that steps taken to facilitate the flow of credit to the minority communities and the progress made in this regard are reviewed regularly at their meetings.
5. Chairman/Managing Director of State Minority Commissions/Boards or the State Minorities Financial Corporations or their representatives may be invited to attend the meetings of DLRCs/SLBCs.

Advances under DRI Scheme

Banks may route loans under the DRI scheme through State Minority Finance/Development Corporation on the same terms and conditions as are applicable to loans routed through SC/ST Development Corporations, subject to the beneficiaries of the Corporations meeting the eligibility criteria and other terms and conditions prescribed under the scheme.

Banks may ensure proper maintenance of the register to evolve timely sanction and disbursement of loan applications.

Monitoring

• Data on credit extended to members of minority communities should be furnished to Reserve Bank of India and to the Government of India, Ministry of Finance and Ministry of Minority Affairs, on half yearly basis as at the end of March and September every year within one month from the end of each half year (Annexure II).
• The Convenor banks of the District Consultative Committees in the identified minority concentrated districts should furnish the data on priority sector advances granted by banks to specified minority communities compiled by them in the prescribed format (Annexure III) for the district under their lead responsibility to the concerned Regional Offices of RBl within one month from the close of the relative quarter.
• The progress made in regard to the flow of credit to the minority communities should be reviewed regularly at the meetings of the District Consultative Committees and the State Level Bankers Committees.
• The Lead Banks in the identified minority concentrated districts should furnish the relevant extracts of the agenda notes and the minutes of the meetings of the DCCs and of the respective SLBCs to the Union Ministry of Finance and to the Ministry of Minority Affairs on a quarterly basis for their use.

Training

1. With a view to ensuring that the bank staff and officers have proper perspective and appreciation of the various programmes for welfare of minorities, necessary orientation may be provided to officials and other staff.
   • For this purpose, banks should include suitable lecture sessions as part of all relevant training programmes like induction courses, programmes on rural lending, financing of priority sectors, poverty alleviation programmes, etc.
2. The Lead Banks in the identified districts may sensitize and motivate the staff posted to identified districts through proper training to assist the minority communities under various credit schemes.
3. The Lead Banks may organize sensitization workshops for bank officials regarding micro credit/lending to SHGs with the help of DDMs of NABARD.
4. The Lead Banks functioning in the identified districts should organize Entrepreneur Development Programmes so that the members of the minority communities in these areas are enabled to derive the benefit of various programmes being financed by the banks.
5. Depending upon the major vocation and type of activity undertaken by large sections of the people in the districts, suitable programmes may be organized in co-operation with State Governments, Industries Department, District Industries Centre, SIDBI, State Technical Consultancy Organization, Khadi and Village Industries Commission and other voluntary organizations which are fully equipped to impart such training and orientation.
6. The duration of the programme, the course content, the faculty support to be selected etc. should be decided by each Lead Bank taking into account the prevailing conditions, need and existing skills as well as aptitude of the people in the district.

Publicity

Banks should create publicity through various means about the anti-poverty programmes of the Government where there is large concentration of minority communities and particularly in the districts listed in the Annexure I.

The lead banks in the identified districts may create awareness among minority communities regarding credit facilities available from banks through appropriate measures which may include publicity through

(i) print media i.e., distribution of pamphlets in local languages, advertisements/articles in newspapers etc.

(ii) TV channels – DD/local channels,

(iii) participation/setting up of stalls in the Melas/fairs organized during the religious/festive occasions by the minority communities.

National Minorities Development and Finance Corporation (NMDFC)

NMDFC promotes economic and developmental activities for the backward sections amongst the minorities. NMDFC works as an apex body and channelises its funds to the beneficiaries through the State Minority Finance Corporation of each State/Union Territory.

Banks may implement the schemes evolved by NMDFC. While extending finance, banks should bear in mind the guidelines/instructions issued from time to time on priority sector advances.

Prime Minister’s New 15 Point Programme for the Welfare of Minorities

An important objective of the above Programme is to ensure that an appropriate percentage of the priority sector lending is targeted for the minority communities and that the benefits of various government sponsored schemes reach the under-privileged, which includes the disadvantaged sections of the minority communities.

The New Programme is to be implemented by the Central Ministries/Departments concerned through State Governments/Union Territories and envisages location of certain proportion of development projects in minority concentration districts.

Accordingly, all scheduled commercial banks are required to ensure that within the overall target for priority sector lending and the sub-target of 11.5 per cent for the weaker sections for FY: 2022-23, sufficient care is taken to ensure that minority communities also receive an equitable portion of the credit.

Lead Banks have been advised to keep this requirement in view while preparing District Credit Plans.

Credit Flow to Minority Communities

List of Circulars consolidated in the Master Circular

RBI/2022-23/99

Master Circular on Credit Facilities to Minority Communities

The Reserve Bank of India has periodically issued guidelines/instructions/directives to banks with regard to providing credit facilities to Minority Communities. The Master Circular enclosed consolidates the circulars issued by Reserve Bank on the subject till date, as listed in the Appendix.

Annexure III

Statement showing Priority Sector Advances granted to the members of specified minority
communities vis-à-vis overall Priority Sector Advances (in the Identified Districts) for the quarter ended………… (Vide paragraph 6.2)

Name of the District .

Note:
1. Number of accounts in actual numbers
2. Amount outstanding in crores of Rupees

Master Circular on Credit Facilities to Minority Communities

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