NBFCs seek easing of rules on NACH mandate cancellation

NBFC industry body says this facility should work on "best effort" basis and not be made mandatory as most customers are not tech-savvy and are not comfortable with electronic platforms

Non-banking finance companies (NBFCs) especially those with assets below Rs 500 crore, are seeking easing of rules to allow mandate cancellation facility (for NACH) through simpler means such as Whatsapp/SMS in a secure manner.

Finance Industry Development Council, the industry lobby group of Assets and Loan Financing NBFCs, said this facility should work on a “best effort” basis and not be made mandatory as most customers are not tech-savvy and are not comfortable transacting on electronic platforms.

Many of these NBFCs are very small and operate in a limited geography and do not have a well-developed website. Also, most of their customers are not tech-savvy and are not comfortable with transacting on electronic platforms. However, they may be comfortable in using SMS or Whatsapp, FIDC said in communication to National Payments Corporation of India (NPCI).

The lobby group said small NBFCs have with great difficulty convinced their customers to use electronic/non-cash means for EMI payments, but still the prevalence of cash repayments is significant.

The provision of the facility for cancellation of NACH mandates therefore is neither feasible nor effective in achieving the ultimate objective of customer empowerment given the nature of these customers.

NACH (National Automated Clearing House) is a funds clearing platform similar to the existing ECS (Electronic Clearing Service).  NACH Cancellation request is used to cancel automatic debit from account every month to pay bills like telephone bills, electricity bills, installments, insurance premiums etc.

FIDC said small NBFCs that operate in limited geographies and provide the vital last mile credit delivery to unserved and under-served segments of the economy including agriculturists, MSME, small road transport operators etc.

Over time, NBFCs have grown in their importance in serving these segments and according to a study carried out by the Boston Consulting Group, serve 70% of “New To Credit” customers, FIDC said.