CashNews.co
Reserve Bank of India (RBI) has reiterated its observation that micro-lenders and non-bank financiers are charging high, usurious interest rates on small businesses and borrowers.
Deputy Governor Swaminathan J has called on small finance banks (SFB) to adopt “responsible lending practices” and not charge excessive interest rates and usurious fees. The deputy governor was reflecting the views of put forward by Governor Shaktikanta Das in the June monetary policy.
“As the target group of such lending is mostly the marginalised and underserved sections of the society, it is essential for the SFBs to adopt responsible lending practices,” Swaminathan said in a speech at a Conference of Directors of Small Finance Banks in Bengaluru recently. He added that small finance banks had an important part to play in India becoming a developed nation by 2047.
“It is disheartening to come across egregious practices by some SFBs, such as charging excessive interest rates, collecting instalments in advance as well as not adjusting such advance collections against loan outstanding, levying of usurious fees, etc. It is also observed that grievance redressal mechanism is far from adequate in most SFBs,” the deputy governor added.
RBI Governor Shaktikanta Das had echoed similar sentiments earlier. “It has also been observed in some microfinance institutions and NBFCs that the interest rates on small-value loans are high and appear to be usurious”, the Governor had observed in his monetary policy statement on June 7.
According to Swaminathan, the targets for small finance banks are “very significant” as they are key to pushing financial services to the underserved, fostering entrepreneurship, and driving inclusive growth “that will be essential for India’s progress towards becoming a high-income economy”. As such, he called on them to “actively participate” in providing loans under the various government schemes to boost access to affordable credit, particularly when it comes to the vulnerable.
The deputy governor also emphasised the need for small finance banks to improve their governance standards, saying that bank boards should be strengthened and that succession planning should be at the top of their to-do lists. “We observe that while the SFBs are strengthening their boards by bringing in new directors, some SFBs are yet to ensure the presence of at least two whole-time directors. I would request these banks to expeditiously consider appointing more WTDs (whole-time directors),” he said.