RBI Governor flags entities misusing freedom to charge usurious rates

The Reserve Bank of India Governor Shaktikanta Das has red-flagged certain regulated entities in the financial services sector for misusing the freedom to set interest rates and charging fees that are usurious, not specified and not disclosed in the key facts statement (KFS).

Stating that customer protection is on top of RBI’s priorities, Das in the latest monetary policy statement said, “It has also been observed in some micro finance institutions and NBFCs that the interest rates on small value loans are high and appear to be usurious.”

He pointed out that while in general key guidelines on KFS are followed, “few regulated entities still charge fees, etc. that are not specified or disclosed in the Key Facts Statement.” The Key Facts Statement contains key facts of a loan agreement, in simple and easy to understand language, and is provided to the borrower in a standardised format. It includes a computation sheet of annual percentage rate and the amortisation schedule of the loan over the term of the loan. All third party charges recovered from the borrower on actual basis also form part of the APR and are disclosed separately.

Das stressed on the importance and need for regulated entities to judiciously use the regulatory freedom they have in setting interest rates and charges “to ensure fair and transparent pricing of products and services.” At a press conference later the RBI governor said that some ‘outliers’ had been seen to be charging rates that are high.

Das further said the RBI is continuing its constructive engagements with such financial entities to safeguard the interest of customers and ensure overall financial stability. “We are engaging with such outliers and asking them to justify the rates.” Some of the charges are not annualised and termed ‘hidden’ charges.