RBI warns the NBFCs against unsustainable practices used by some in the sector that can possibly lead to financial instability for broader economy
The Reserve Bank of India (RBI) Governor Shaktikanta Das has increased the unified payments interface (UPI) 123 pay limit from Rs 5,000 to Rs 10,000 and the UPI lite wallet limit from Rs 2,000 to Rs 5,000. The regulator made the announcement on October 9 during the bi-monthly monetary policy committee (MPC) meeting. Additionally, RBI kept the repo rate unchanged for the tenth consecutive time at 6.5 per cent.
During the MPC meeting, the governor warned the non-banking financial companies (NBFCs) regarding unsustainable business practices employed by few in the sector. Das praised the growth achieved by NBFCs in the past few years but at the same time pointed out the “growth-at-any-cost" approach by some in the sector risky for financial stability.
“The Reserve Bank is closely monitoring these areas and will not hesitate to take appropriate actions if necessary. Self-correction by NBFCs would, however, be the desired option,” said the RBI Governor.
He emphasised that the NBFCs should focus on ‘compliance-first culture’ and adhere to fair practices in customer dealings.
The regulator has been eyeing the financial space, particularly NBFCs, for quite some time now. Additionally, its efforts aren’t limited to issuing warning; earlier in March, the central bank banned JM Financial Products from issuing loans against shares and debentures, including sanctioning and disbursing loans against the initial public offering (IPO) of shares.
Previously, RBI conducted a special audit of IIFL Finance and reportedly found several irregularities in its gold loan operations, including cash disbursals and collections exceeding statutory limits, lack of transparency in customer charges, deviations in assaying and certifying gold purity and weight, and breaches in the loan-to-value (LTV) ratio. The RBI in March imposed restrictions on IIFL Finance’s gold business, which was recently removed.
Earlier in May this year, the RBI Deputy Governor Swaminathan too had cautioned the NBFCs. He reportedly said, “There appears to be a fancy among most NBFCs to do more of the same thing, such as retail unsecured lending, top-up loans or capital market funding.” Such practices erode trust and confidence in the financial sector, potentially exposing consumers, investors, and the broader economy to risks and vulnerabilities, he added.