The government, in partnership with states, has proposed strict measures to tackle unregulated lending, which could soon become a serious offence. A new draft Bill called BULA (Banning of Unregulated Lending Activities) aims to regulate both traditional and digital lending practices. It suggests penalties including prison terms of up to 10 years and hefty fines.
The draft Bill, released by the finance ministry, invites feedback from stakeholders until February 13. Under the proposed law, lenders engaging in illegal lending could face jail sentences between 2 to 7 years, along with fines ranging from ₹2 lakh to ₹1 crore. Those who use unlawful methods to harass borrowers might be punished with imprisonment of 3 to 10 years and heavy financial penalties.
The Central Bureau of Investigation (CBI) will handle cases that span across multiple states or involve significant financial transactions impacting the public. The Bill defines “unregulated lending” as any lending activity not authorised by the Reserve Bank of India (RBI) or other regulatory bodies. It prohibits individuals or organisations from lending money unless they are legally registered or authorised.
The draft references 20 existing laws, such as the RBI Act, Banking Regulation Act, and State Money Lenders Act, which already regulate lending activities. It also allows the government to modify these laws if necessary to avoid overlaps.
This initiative stems from a 2021 report by the RBI’s Working Group on Digital Lending, which highlighted the need for stricter regulations to curb illegal lending. Digital lending, a fast-growing sector, has faced challenges with unauthorised entities pretending to be legitimate lenders, often exploiting borrowers who lack awareness.
Mayank Arora, a regulatory expert, explained that digital lending often leaves borrowers unaware of who their actual lenders are due to the lack of physical interaction. He added that unregulated entities use this confusion to operate illegally, harming the lending ecosystem. The BULA Bill aims to create a central repository of authorised lenders, ensuring ethical lending practices in the country.
By introducing these measures, the government hopes to protect borrowers and bring transparency to the lending industry, especially in the fast-evolving digital sector.
