Lok Sabha Question No. 909 (UNSTARRED), answered on 2018-12-14
Subject: Interest Rate of NBFC
Ministry: FINANCE
Asked by: BOORA NARSAIAH GOUD

## GOVERNMENT  OF INDIA MINISTRY  OF FINANCE DEPARTMENT  OF FINANCIAL SERVICES

## LOK SABHA

## UNSTARRED QUESTION NO. 909 TO BE ANSWERED ON THE 14 TH  DECEMBER 2018/ AGRAHAYANA 23, 1940  (SAKA) Interest Rate of NBFC

## 909.  DR.  BOORA  NARSAIAH  GOUD:

Will  the Minister  of FINANCE  be pleased to state:

- (a) the  monitoring   mechanism   of  Government/RBI   in  place  to  monitor   Non Banking   Financial   Companies   (NBFCs)   in  the  country   with   particular   reference   to Telangana;
- (b) whether  it has come to the notice  of the Government  of the exorbitant  rates of interest  charged  by  NBFCs  which  is much  higher  than  the rate of interest  fixed by  State Government;  and
- (c) if  so,  the  details   thereof   and  the  action taken   by   the  Government/RBI   in  this regard?

## ANSWER Minister of State in the Ministry  of Finance

## (SHRI SHIV PRATAP  SHUKLA)

- (a): Reserve  Bank of India (RBI) has informed  that  Non  Banking  Financial  Companies (NBFCs)  registered  with  it are subjected  to periodic  on-site inspections  based on their systemic   importance   (asset  size  greater   than   Rs.  500  crore)   and  whether   they   are categorised  as deposit-taking  NBFCs.  Systemically important  NBFCs  and deposit-taking NBFCs  are  required   to  submit   quarterly returns   on  balance-sheet   data  and  data  on financial   parameters   quarterly,  while   other   NBFCs   are  required   to  submit   an  annual return to  RBI  to  facilitate   off-site  supervision.   Statutory auditors of  all  NBFCs   are mandated   to  provide   an  auditor's   certificate   to  RBI  to  the  effect  that   the  registered NBFCs continue  to hold the Certificate  of Registration  by  satisfying  the conditions  upon which  the certificate  was issued.
- (b) and (c): RBI has informed  that  it does not prescribe  interest  rates to be charged  to borrowers  by  NBFCs  (other  than  NBFC  -  Micro  Finance  Institution),  and that  the rates of interest  charged  by  an NBFC  are governed  by  the terms  and conditions  of the loan agreement  entered  into  between  the NBFC  and the borrower.  RBI has further  informed that  it has advised the Boards of applicable  NBFCs  to adopt an interest  rate model  taking into   account   relevant   factors   such  as  cost  of  funds,   margin   and  risk   premium   and determine  the rate of interest  to be charged  for loans and advances.  Further,  as per extant guidelines,  the rate of interest  and the approach  for gradations  of risk  and rationale  for

charging   different   rates  of  interest   to  different   categories   of  borrowers   have  to  be disclosed  to  the  customer   in  the  application   form   and  communicated explicitly in  the sanction  letter.  In addition,  the rates of interest  and the approach  for gradation  of risks followed  by  NBFCs  have to be made available  on their  website  or published  in relevant newspapers,  and the information  so published  needs to be updated  whenever  there  is a change.  Moreover,  to ensure  that  the borrower  is aware  of the exact rates that  would  be charged  to the account,  the rate of interest  must  be annualised  rate.  Further,  Boards of applicable   NBFCs   have  been  asked  to  lay   out  appropriate   internal   principles   and procedures  in determining  interest  rates and processing  and other  charges.  In this regard, the directions  in the Fair  Practices  Code  issued by  RBI about  transparency in respect of terms and conditions  of the loans are to be kept  in view.