The Reserve Bank of India (RBI) Governor Shaktikanta Das has cautioned non-banking finance companies (NBFCs) against aggressively pursuing growth without building up sustainable business practices and risk management frameworks.
Das also cautioned Non-Banking Financial Companies (NBFCs) that give incentives and fixed targets for granting employee loans. While announcing the monetary policy, Das emphasised that such practices could negatively impact customer interests and lead to an unhealthy work culture. “The Reserve Bank is closely monitoring these areas and will not hesitate to take appropriate actions if necessary. Self-correction by NBFCs would, however, be the desired option,” said the RBI Governor.
The Governor pointed out that some NBFCs offer compensation structures, including variable pay and incentives, that are purely target-driven. He expressed concern that these practices could create a high-pressure work environment, which may result in poor customer service. “NBFCs may refute their prevailing compensation practices, variable pay, and incentive structures, some of which appear to be purely target-driven in certain NBFCs. Such practices may result in adverse work culture and poor customer service,” Das stated.
He urged NBFCs, including microfinance institutions (MFIs) and housing finance companies, to prioritise sustainable business goals and foster a compliance-first culture. This includes maintaining strong risk management frameworks and adhering to fair practices in customer dealings. “It is important that NBFCs, including MFIs and housing finance companies, follow sustainable business goals, a compliance-first culture, a strong risk management framework, a strict adherence to fair practices code, and a sincere approach to customer grievances,” said Das, while also suggesting that self-correction by NBFCs would be the preferred route.
Governor Das said that while the health of NBFCs is good, but raised concerns about some NBFCs that are aggressively pursuing growth without focusing on building sustainable practices. He noted that some NBFCs, driven by significant capital inflows from domestic and overseas sources, are chasing excessive returns on equity. In doing so, they may charge high interest rates, impose hefty processing fees, and levy unreasonable penalties, which can harm customers. “While such pursuits are in the domain of the boards and management of NBFCs, concerns arise when interest rates they charge become usurious and get combined with unreasonably high processing fees and frivolous penalties,” the governor added.
Beneficiary Account Name Look-up For RTGS and NEFT Systems
Another significant development is the introduction of a beneficiary account name look-up facility for the Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) systems.
Currently, such a facility exists for UPI and Immediate Payment Services (IMPS), where the remitter can verify the receiver’s name before completing a transaction. By extending this feature to RTGS and NEFT, the RBI aims to reduce fund transfer errors and minimise fraud risk by allowing remitters to verify the account holder’s name before initiating a transfer
