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
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.