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RBI crackdown on NBFCs sparks debate over fairness
- Critics allege Reserve Bank of India's (RBI) recent crackdown on four NBFCs are arbitrary and don't have logic.
- Founders and experts have raised concerns regarding the crackdown, questioning what 'reasonable rates' mean to the authority. Why aren't credit card companies who charge rates as high as 40% or more held to the same standard?
- In its order last week, the RBI asked NBFCs to halt lending while penalizing them allegedly for charging excessively high-interest rates. The RBI does not regulate interest rate spread, but it expects NBFCs to maintain reasonable procedures and internal principles for pricing loans.
- An executive investor in lending startups LendingKart and LoanTap asserted the problems of usurious rates should be solved by more competition, not by handing new banking and NBFC licenses and shutting down existing players.
- Non-banks must account for future securitisation prospects and fraud, which could render a loan unserviceable. But financial inclusion, a goal the government champions, could be undermined if lending rates are suppressed without considering the associated risks.
- Credit card APRs in India can be equal to, or even higher than, those offered by regulated microfinance institutions (MFIs), which typically charge between 20% to 30% annually.
- Those in the industry who argue that high-interest rates are necessary to cover unsecured risk insist there must be better transparency and borrower protection in place.
- Morgan Stanley suggests more lending firms may come under regulatory scrutiny as the regulator’s role isn’t only to support innovation but also to ensure it is done responsibly.
- The market regulator's job is not just to support innovation but also to guarantee that it is done well and with responsibility.
- According to an executive investor in lending startups, there's a need for a natural progression to bring down costs without hindering the charging of appropriate lending rates.
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