RBI Deputy Governor's Critique of NBFCs

Concerns Over Loan Practices

• Excessive Interest Rates: Some NBFCs are criticized for weak underwriting and charging unsustainable interest rates, often disguised as upfront or processing fees.
• Aggressive Recovery Methods: In cases of default, some NBFCs employ aggressive recovery practices.

RBI Deputy Governor emphasized that financial inclusion should not lead to financial exploitation. He stated that fair conduct is a shared responsibility across the organization, from the CEO to internal assurance functions.

Importance of Fair Treatment

• Customer-Centric Culture: Organizations should embed a customer-centric culture to ensure sustainable business models.
• Transparent Pricing: Pricing should be clear, without hidden costs or predatory interest rates.
• Empathetic Recovery: Recovery in cases of default should be handled with empathy and respect.

Recommendations for Risk Management

• Intelligent Risk Management: NBFCs should build strong internal controls for asset-liability management and monitor funding sources.
• Audit Scrutiny: Statutory auditors should examine internal controls and complex structures to ensure corrective actions are taken seriously.

Swaminathan highlighted NBFCs' role as engines of credit, serving underserved segments through tailored products and technology. Their agility and customer ties make them crucial in enhancing financial inclusion alongside traditional banks.