Reserve Bank of India (RBI) Deputy Governor M. Rajeshwar Rao came down heavily on microfinance institutions (MFIs) for charging higher rates to borrowers, thus cautioning against irresponsible practices.
He expressed concern over some MFIs disproportionately increasing their margins under the new regime, warning that misuse of regulatory freedom would prompt regulatory action.<\/p>\n\n\n\n
\u201cIt has been observed that while the lenders were quick to pass on the increased costs to borrowers, they have been reluctant to pass on the benefits envisaged under the new framework.
Some MFIs have increased their margins disproportionately under the new regime. We are not oblivious to the misuse of the freedom provided to the microfinance sector and irresponsible practices would compel us to act,\u201d he said.<\/p>\n\n\n\n
In 2021, the RBI had given full freedom to entities on interest rates to be charged for microloans by lifting the interest rate cap of 24 per cent put earlier.
Further, Rao addressed the atypical nature of non-banking finance companies (NBFCs) advocating for bank-like status, stating that NBFCs serve distinct economic functions and should not seek to emulate banks.<\/p>\n\n\n\n
He said, \u201cThe NBFCs have evolved as niche companies serving specific economic functions and it is uncharacteristic for them to demand becoming like a bank.\u201d
He also highlighted issues with peer-to-peer (P2P) lending among NBFCs, citing instances where practices deviated from regulatory guidelines.<\/p>\n\n\n\n
Rao emphasised the importance of educating lenders about credit risks and denounced any breaches of licensing conditions or regulatory standards. Rao said, \u201cOf late, some of the business practices of NBFC-P2Ps do not appear to be in line with the regulatory guidelines. A large proportion of lenders on NBFC-P2Ps are individuals and they are not expected to be well-equipped to understand the risks involved in providing credit.<\/p>\n\n\n\n
Instead of educating the lenders about the inherent risks in the lending activity, NBFC-P2Ps have been observed to underplay the risks through various means such as promising high\/ assured returns, structuring the transactions and providing anytime fund recall facilities. Let me make it clear that any breach of licensing conditions and regulatory guidelines is not acceptable.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
Reserve Bank of India (RBI) Deputy Governor M. Rajeshwar Rao came down heavily on microfinance institutions (MFIs) for charging higher rates to borrowers, thus cautioning against irresponsible practices.He expressed concern over some MFIs disproportionately increasing their margins under the new regime, warning that misuse of regulatory freedom would prompt regulatory action. \u201cIt has been observed […]<\/p>\n","protected":false},"author":1,"featured_media":404360,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[667],"tags":[],"class_list":["post-404355","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business"],"_links":{"self":[{"href":"https:\/\/nagalandpost.net\/index.php\/wp-json\/wp\/v2\/posts\/404355","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/nagalandpost.net\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/nagalandpost.net\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/nagalandpost.net\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/nagalandpost.net\/index.php\/wp-json\/wp\/v2\/comments?post=404355"}],"version-history":[{"count":0,"href":"https:\/\/nagalandpost.net\/index.php\/wp-json\/wp\/v2\/posts\/404355\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/nagalandpost.net\/index.php\/wp-json\/wp\/v2\/media\/404360"}],"wp:attachment":[{"href":"https:\/\/nagalandpost.net\/index.php\/wp-json\/wp\/v2\/media?parent=404355"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/nagalandpost.net\/index.php\/wp-json\/wp\/v2\/categories?post=404355"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/nagalandpost.net\/index.php\/wp-json\/wp\/v2\/tags?post=404355"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}