I-T raids on loan agent raise kickback concerns

New Delhi, Sep 30, 2024

Income tax raids on a direct selling agent (DSA) for loans of NBFCs and private banks in Hyderabad have blown the lid off suspected kickbacks to bank and company executives by the agency and raised calls for a nation-wide check on an industry-wide practice.

The loan agent, booking revenue, mainly via commissions, of Rs 1,000 crore annually, was allegedly showing unusually high expenses, which attracted the tax department’s attention.

These were shown as non-salary expenses to ensure that the tax liability did not go up. Typically, salaries and incentives to staff make for a substantial chunk of expenditure for loan agents, who earn commissions that can be as high as 2.5% of the loan value in certain cases.

How dept works

Banks and NBFCs rely on a network of loan sales agents to garner business, who are paid a fee or commission. Lenders have been aggressively pushing retail loans, whether it is auto, home or others, triggering concerns even in RBI, whose regulatory moves have helped slow down the pace in recent months. Some of the loans in the retail segment were given without adequate security, raising regulatory discomfort.

The search has triggered a red alert and tax authorities suspect that similar payoffs are made in case of credit card acquisition as well as insurers, which faced scrutiny a few years ago. Of ten a part of the commission earned by the loan agents or, say, auto dealers who hawk loans on behalf of banks and finance companies, is shared with customers who demand steep discounts.

During a phase of good sales when sellers have an upper hand, customer discounts are relatively lower. At these times, agents earn higher margins and a part of it may have been shared with bank or NBFC executives. Some of the kickbacks may have been passed in cash. The issue is being probed further to ascertain more detail, sources told TOI.

[The Times of India]