Lok Sabha Question No. 472 (UNSTARRED), answered on 2023-02-06
Subject: Interest Rates Charged by NBFCs
Ministry: FINANCE
Asked by: Vishnu Dutt Sharma

## GOVERNMENT OF INDIA MINISTRY OF FINANCE

## LOK SABHA UNSTARRED QUESTION NO-472

ANSWERED ON- 06/02/2023

## INTEREST RATES CHARGED BY NBFCs

## 472. SHRI VISHNU DATT SHARMA

Will the Minister of FINANCE be pleased to state:-

(a) whether the Government is taking any measure to address the situation of very high interest rates being charged by Non-Banking Financial Companies (NBFCs) from poor customers despite the fact that loans disbursed by NBFCs are insured (secured);

(b) if so, the details thereof along with the corrective steps taken/proposed to be taken by the Government in this regard; and

(c) if not, the reasons therefor?

## ANSWER

## THE MINISTER OF STATE IN THE MINISTRY OF FINANCE

(DR. BHAGWAT KARAD)

(a) to (c): Reserve Bank of India (RBI) has deregulated interest rates on loans and advances. Neither the RBI nor the Government prescribe the interest rate to be charged by the NBFCs and the same are governed by the terms and conditions of the loan agreement entered into between the borrower and the NBFC.  Boards of NBFCs  have  been  directed to lay out appropriate internal principles and procedures in determining interest rates and processing and other charges.

Further,  RBI  has  issued  various  guidelines/norms  applicable  to  NBFCs  with regard to the charging of rate of interest to its borrowers which, inter alia , include the following:

- (i) To protect  the  interest  of  customers,  RBI  has  laid  down  a  Fair  Practices Code  which  has  to be adhered to  by  NBFCs.  Grievance  Redressal Procedure has also been laid  down  to adequately address customer complaints.
- (ii) The  Board  of  each  NBFC  are  required  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. The rate of interest and the approach for gradations of risk and rationale  for  charging  different  rates  of  interest  to  different  categories  of

borrowers  is  required  be  disclosed  to  the  borrower  or  customer  in  the application form and communicated explicitly in the sanction letter. Boards of  NBFCs  are  required  to  lay  down  appropriate  internal  principles  and procedures in determining interest rates.

- (iii) The rate of interest and approach for gradation of risks are required to be made available on the website of the NBFCs or published in the relevant newspapers.  The  information  published  on  the  website or otherwise published  has  to  be  updated  whenever  there  is  a  change  in  the  rates  of interest.  The  rate  of  interest  has  to  be  an  annualised  rate  so  that  the borrower is aware of the exact rate that would be charged to the account.

(iv) Other requirements which have been laid down include the following:

- (1) All communications to the borrower related to change in the terms and conditions  including  disbursement  schedule,  interest  rates, service charges, prepayment charges etc., have to be in vernacular language or a language as understood by the borrowers.
- (2) Loan  application  forms  should  include  necessary  information  which affects  the  interest  of  the  borrower,  so  that  the  borrower  may  take informed  decision  by  meaningfully  comparing  with  the  terms  and conditions offered by other NBFCs.
- (3) NBFCs  are  required  to  mention  the  penal  interest  charged  for  late repayment in bold in the loan agreement.
- (4) NBFCs are also required to ensure that changes in interest rates and charges are effected only prospectively.

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