RBI Governor Flags 'High And Usurious' Rates Charged By Some Lenders On Small Loans

Some microfinance institutions and non-bank financial companies are charging high interest rates on small-value loans, which appear to be "usurious," according tp the Reserve Bank of India's Governor Shaktikanta Das.

"It has been observed that in some MFIs and NBFCs, interest rates on small-value loans are high and appear to be usurious," Das highlighted in his monetary policy speech on Friday, while flagging concerns over customer protection.

Generally, banks follow guidelines on key fact statements, but a few regulated entities charge fees that are not specified or disclosed in the key fact statement—a document that contains key facts of a loan agreement in simple and easier-to-understand language and is provided to the borrower in a standardised format.

Lenders should use the regulatory freedom with respect to interest rates and charges judiciously to ensure fair and transparent pricing of products and services, Das said.

In the post-policy media briefing, Das clarified that interest rates charged by lenders are de-regulated under the Fair Practices Code. Having said that, RBI insists that the interest rates charged on loans must be fair and transparent.

"It is not a system-wide issue, but there are some outliers with whom we are engaging regularly to understand what is the basis of charging such high interest rates," he said.

Further, Das said that there are some hidden charges, which must be revealed as mandated by key fact statement. The KFS must detail annualised rate of interest, including breakdown of processing fees and other charges, he added.