RBI Governor Shaktikanta Das asks NBFC-MFIs to be judicious in using flexibility on interest rates

Nov 22, 2023

Synopsis
It can be noted that following the crisis in the microfinance segment in Andhra Pradesh that had also led to the creation of the NBFC-MFI segment, the Reserve Bank of India (RBI) had capped the maximum interest which lenders can charge at 24 per cent. The rate regime was deregulated it in 2021, making it possible for entities to charge as much as they want.

Stating that some Non Banking Finance Company-Microfinance Institutions (NBFC-MFIs) are making wider net interest margins, RBI Governor Shaktikanta Das on Wednesday asked entities to be "judicious" in using the flexibility on the interest rates they charge from borrowers. Speaking at the annual Fibac event, Das said the microlending segment serves marginalised clientele and has emerged as an important financial conduit to foster financial inclusion.

"Though the interest rates are deregulated, certain NBFC-MFIs appear to be enjoying relatively higher net interest margins. It is indeed for microfinance lenders themselves to ensure that the flexibility provided to them in setting interest rates is used judiciously," he said.

It can be noted that following the crisis in the microfinance segment in Andhra Pradesh that had also led to the creation of the NBFC-MFI segment, the Reserve Bank of India (RBI) had capped the maximum interest which lenders can charge at 24 per cent. The rate regime was deregulated it in 2021, making it possible for entities to charge as much as they want.

Das acknowledged that such entities have to bear in mind the affordability and the repayment capacity of the borrowers while setting their interest rates.

[The Economic Times]