RBI Directs Non-Bank Lenders to Adhere to Cash Payout Limit for Loans

India’s Reserve Bank, in a recent move, cautioned non-bank lenders against surpassing the permissible limit of ₹20,000 ($240) for cash loans, aiming to curb large cash disbursements particularly in the gold loan sector. This advisory follows regulatory action taken against IIFL Finance, the country’s second-largest gold loan player, for violating cash disbursal norms.

With retail credit in India witnessing substantial growth, including a three-fold increase in loans against gold over the past four years, concerns have risen over the widespread practice of disbursing significant portions of these loans in cash. While several sources revealed this trend, they preferred anonymity due to lack of authorization to speak to the media.

According to income tax regulations, Indian lenders are prohibited from providing cash loans exceeding ₹20,000 to customers. However, non-bank finance companies (NBFCs) have reportedly flouted this rule, resorting to tactics such as indemnity agreements to shift liability against potential income tax actions onto borrowers.

In response, the Reserve Bank of India (RBI) has intensified monitoring efforts to ensure compliance among lenders, aiming to safeguard customer interests and prevent systemic risks from accumulating. One source emphasized the necessity for such vigilance amidst the growing prominence of non-complying lenders.

Simultaneously, RBI Governor Shaktikanta Das convened discussions with banks and key stakeholders to explore avenues for enhancing the Unified Payments Interface ecosystem. UPI, a real-time payment system developed by the National Payments Corporation of India (NPCI), facilitates inter-bank transactions through mobile phones.

During the meeting, which included representatives from banks, NPCI, third-party application providers, and technology service providers, potential strategies for expanding UPI’s reach and fostering innovative payment solutions were deliberated upon. The RBI aims to bolster the efficiency and inclusivity of India’s digital payment infrastructure through collaborative efforts with various stakeholders.

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