Financial inclusion is not a licence to exploit: RBI Deputy Governor

NBFCs pulled up for lax underwriting, steep charges

Reserve Bank of India (RBI) Deputy Governor Swaminathan J criticised some non-banking financial companies (NBFCs) for lax loan appraisal practices and charging excessive interest rates, even as he acknowledged the sector’s rapid expansion over the past decade, especially in recent years.

 

“Unfortunately, some NBFCs seem to believe they can operate with weak underwriting in the pursuit of fast growth while levying excessive and unsustainable interest rates — sometimes disguised as upfront or processing fees — followed by aggressive recovery methods in case of default,” Swaminathan said at the conference of NBFCs in Chennai last month. The speech was published on the RBI website on Thursday.

 

Calling such practices unacceptable, Swaminathan said, “Financial inclusion cannot be used as a pretext for financial exploitation.”

 

He stressed that fair conduct is a shared responsibility of the chief executive, the board, and internal assurance functions. “A customer-centric culture must be driven from the top and embedded throughout the organisation,” he said.

 

Highlighting the importance of fair treatment, he added, “Even as we pursue scale, speed, and profit, we must not lose sight of fairness to a customer — it is the foundation of a sustainable business model.”

 

He urged NBFCs to fulfil their promise of inclusion by treating customers with dignity, clarity, and care. “This means offering transparent, easy-to-understand pricing, free from hidden costs or predatory interest rates. In cases of default, recovery should be handled with empathy and respect,” he said.

 

Swaminathan also called for intelligent risk management. NBFCs, he said, must build strong internal controls to assess and manage asset-liability mismatches and monitor the composition and tenor of their funding sources. He pointed out that the sector’s structural vulnerabilities stem from its reliance on short-term funding for long-term lending and its exposure to higher-risk borrowers, making it more susceptible to market volatility and liquidity shocks.

 

He urged statutory auditors to closely examine the strength of internal controls in NBFCs.

 

“Audit findings must lead to timely, meaningful, corrective action — not just sit in meeting minutes,” he said, calling for greater scrutiny of complex structures, derivatives, off-balance-sheet items, related-party transactions, and provisioning policies.

 

NBFCs, he said, have become vital engines of credit, extending loans to segments long underserved or excluded by the traditional banking system.

 

Harnessing technology and local insight, they’ve crafted tailored products for diverse borrowers.

 

Their agility and close customer ties, Swaminathan added, have allowed NBFCs to complement banks and, in many cases, drive the growth of a deeper, more inclusive financial ecosystem.