RBI warns against ‘usurious’ rates on small-ticket loans

MUMBAI: RBI has said that it is engaging with providers of small-ticket loans who charge ‘usurious’ interest rates, asking them to ensure transparency and, if necessary, re-examine their business plans.
“It has been observed in some microfinance institutions and NBFCs that the interest rates on small-value loans are high and appear to be usurious. The regulatory freedom enjoyed by regulated entities in respect of interest rates and charges should be used judiciously to ensure fair and transparent pricing of products and services,” said RBI governor Shaktikanta Das in his monetary policy statement.
The governor’s comments come at a time when there are complaints against digital lenders who extend small-ticket loans at high rates of interest.There have been cases of lenders harassing third parties whose phone numbers have appeared in their systems, even though they have not taken out any loan.

“RBI has a fair practices code, but apart from this, all interest rates for banks, finance companies, and microfinance companies are deregulated. Our guidelines require that interest rates should be fair and transparent. We have seen some outliers charging usurious rates and our supervision department is engaging with them,” said Das. He added that the supervisory officials were monitoring the situation to take further action if needed.
According to deputy governor Swaminathan J, the objective is to flag any possible build-up of risks to the lenders. “We have requested the boards to relook and re-strategise their business plans. We have left it to the individual entities, basis, their business plans… If it is required, they will have to modify their business plans to suit long-term sustainability. That is what we would look for,” said Swaminathan. He added that RBI is not going to interfere or get into any micromanagement but would leave it to the wisdom of the respective boards.
Das also mentioned that in Nov last year, RBI raised concerns about the excessive growth of unsecured retail loans and the over-reliance of NBFCs on bank funding. He said that recent data indicates some moderation in these loans and advances.
Recently, RBI had engaged with lenders to increase transparency by asking them to annualise all fixed charges so that customers get an idea of the cost of borrowings. In the past, when the lenders did not respond to signals from RBI, the regulator has not hesitated to step in and place business restrictions.