Current · Source: Reserve Bank of India · RBI/2006-2007/414 · issued 24 May 2007 · ~2 min read
Quick answerRBI warns NBFCs against charging excessive interest or fees, urging boards to set internal rate-setting policies aligned with fair practices. Though rates remain unregulated, extreme charges are unsustainable. NBFCs must confirm compliance within one month to their regional RBI office.
The rule, in the simplest words
NBFCs must set their own rules for how much interest they charge and what fees they take, following fair practices.
These rules must be approved by the NBFC's board and made clear to customers.
NBFCs must tell their regional RBI office within a month that they have set these rules.
How it plays out — a real example
Rahul, a forex & trade-finance officer in Indore, reviews his NBFC's pricing model to ensure it's transparent and fair. He documents the board-approved policies for determining interest rates and processing charges, and trains his staff on the new internal principles. This helps prevent excessive charges on gold loans and maintains a good reputation for the NBFC.
What changed
RBI issued a circular on May 24, 2007, directing NBFC boards to establish internal principles for determining interest rates and processing charges. This follows numerous complaints about excessive levies on loans. The circular emphasizes that while rates are not regulated, excessively high charges are not sustainable and must be curbed through board-approved policies.
What it means for you
NBFCs must now formalize internal rate-setting frameworks to avoid regulatory scrutiny. Lenders should review their pricing models to ensure they are not perceived as predatory, as RBI may escalate action if complaints persist. This reinforces the Fair Practices Code, requiring transparency in loan terms and charges.
What you must do
Review and document board-approved policies for determining interest rates and processing charges.
Align pricing practices with the Fair Practices Code, ensuring full transparency on loan terms.
Submit confirmation of compliance to your regional RBI office within one month of the circular date.
Train staff on the new internal principles to prevent excessive charges on any loan product.
Who it affects
All Non-Banking Financial Companies (NBFCs), Residuary Non-Banking Companies (RNBCs), NBFC boards and senior management, Compliance and risk teams at NBFCs
❓ Common questions
Does RBI regulate interest rates for NBFCs?
No, RBI does not regulate interest rates directly. However, this circular warns that rates beyond a certain level may be seen as excessive and unsustainable, urging boards to set internal policies.
What is the deadline for compliance?
NBFCs must confirm having put in place appropriate systems within one month from the date of the circular (May 24, 2007) to their regional RBI office.
What happens if an NBFC does not comply?
The circular does not specify penalties, but non-compliance may lead to increased regulatory scrutiny or action based on ongoing complaints about excessive charges.
📜 Read the original circular — full text as issued by RBI
RBI/2006-2007/414
DNBS.PD/ CC.No. 95 /03.05.002 /2006-07
May 24, 2007
To,
All Non-Banking Financial Companies (NBFCs)
Including Residuary Non- Banking Companies (RNBCs)
Dear Sir,
Complaints about excessive interest charged by NBFCs
The Reserve Bank has been receiving several complaints regarding levying of excessive interest and charges on certain loans and advances by NBFCs.
2. Though interest rates are not regulated by the Bank, rates of interest beyond a certain level may be seen to be excessive and can neither be sustainable nor be conforming to normal financial practice.
3. Boards of NBFCs are, therefore, advised to lay out appropriate internal principles and procedures in determining interest rates and processing and other charges.
4. In this regard the guidelines indicated in the Fair Practices Code about transparency in respect of terms and conditions of the loans may be kept in view.
5. NBFCs may confirm having put in place appropriate systems in this regard within a period of one month from the date of this circular to the Regional Office of this Department in whose jurisdiction they are registered.
Yours faithfully
(P Krishnamurthy)
Chief General Manager In-Charge
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2006-2007/414 · issued 24 May 2007. The plain-English explanation above is BankPulse’s own independent summary.
Example: if you are a Compliance officer at a bank this circular applies to (All Non-Banking Financial Companies (NBFCs), Residuary Non-Banking Companies (RNBCs), NBFC boards and senior management, Compliance and risk teams at NBFCs), your first concrete step on “RBI Cracks Down on Excessive NBFC Interest Rates” is: “Review and document board-approved policies for determining interest rates and processing charges.” (RBI issued this 24 May 2007).
Circular: RBI/2006-2007/414 -- RBI Cracks Down on Excessive NBFC Interest Rates
Issued: 24 May 2007
Action required: Review and document board-approved policies for determining interest rates and processing charges.
Action required: Align pricing practices with the Fair Practices Code, ensuring full transparency on loan terms.
Action required: Submit confirmation of compliance to your regional RBI office within one month of the circular date.
Action required: Train staff on the new internal principles to prevent excessive charges on any loan product.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 05 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=3550&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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