RBI Warns NBFCs Against Loans Above ₹20,000 in Cash

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Synopsis:

 India's RBI warns non-bank finance companies (NBFCs) against disbursing cash loans exceeding ₹20,000 to comply with income tax regulations, following regulatory action against IIFL Finance. Gold loan disbursements surge, prompting RBI's vigilance to protect customers and prevent systemic risks.

RBI News Today

India's central bank, the Reserve Bank of India (RBI), issues a warning to non-bank lenders against disbursing cash loans surpassing the permissible limit of ₹20,000, aiming to curb financial violations.\

Additional ReadShare Market News

Backdrop of Regulatory Action

The advisory follows recent regulatory action against IIFL Finance, India's second-largest gold loan provider, for breaching cash disbursal and other regulatory norms, indicating intensified scrutiny over lending practices.

Cash Disbursements Violation & Rising Gold Loans

Retail credit in India, particularly loans against gold, has witnessed a threefold increase over the last four years, fostering a significant reliance on gold-backed lending in the financial sector. A substantial portion of gold loans is disbursed in cash, contrary to income tax regulations prohibiting lenders from issuing cash loans exceeding ₹20,000.

RBI's Intervention

The RBI intensifies vigilance against non-compliant lenders to safeguard customer interests and prevent the accumulation of systemic risks within the financial sector, reiterating the legal provisions governing cash loans.

Impact on NBFCs

Non-bank finance companies, particularly those engaged in gold loan financing, face heightened competition, leading some to take excessive risks. The shares of key players like Muthoot Finance and Manappuram Finance remain in focus.

In Conclusion

The RBI's directive as an attempt to curb the proliferation of black money and close loopholes in income tax regulations emphasises the importance of regulatory compliance for the stability of India's financial system.

Sources:

https://www.livemint.com/industry/banking/rbi-asks-non-banks-to-stick-to-loan-cash-payout-limit-11715177344818.html

https://economictimes.indiatimes.com/industry/banking/finance/rbi-asks-nbfcs-to-stick-to-loan-cash-payout-limit-of-rs-20000/articleshow/109946655.cms?from=mdr

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