India’s central bank, the Reserve Bank of India (RBI), recently instructed non-bank finance companies (NBFCs) to strictly adhere to a cash loan payout limit of 20,000 rupees ($240). This directive aims to discourage excessive cash transactions. The RBI’s guidance, outlined in a letter viewed by Reuters and communicated through two informed sources, cited Section 269SS of the Income Tax Act, 1961.
According to this provision, individuals cannot receive more than 20,000 rupees in loan cash payout. Consequently, the RBI emphasized that NBFCs should not disburse loan amounts exceeding 20,000 rupees in cash to comply with this regulation.
RBI Limits Loan Cash Payout to 20,000 Rupees for NBFCs
The RBI sent a letter to NBFCs, saying no one can get more than 20,000 rupees in cash loans, as per the Income Tax Act. This means NBFCs shouldn’t give out more than 20,000 rupees in cash as loans.
This happened after the RBI told IIFL Finance to stop giving gold loans to new customers because they weren’t handling loans properly. IIFL Finance’s gold loan business is a big part of their business. The RBI found problems like not checking gold purity and weight properly, giving out too much cash in loans, not following the right auction rules, and not being clear about customer charges. The RBI is doing this because more people are getting loans after COVID-19 and want to ensure things are done right.
RBI Takes Action After Rules Breach by IIFL Finance
The RBI sent out the letter because IIFL Finance was caught breaking several rules, such as giving out more cash in loans than allowed by law.
The sources who discussed this didn’t want their names out there because they are not allowed to talk to the media about it. Even though someone emailed the RBI to ask for their thoughts, they didn’t respond right away.
Earlier in March, IIFL Finance promised to be more transparent about the charges it puts on customer accounts. For example, they would explain why they charge 200 rupees when sending a notice for an auction and an extra 1,300 rupees when actually auctioning off gold loans.
Now, the RBI told IIFL Finance it can only give out cash loans up to 20,000 rupees instead of the earlier limit of 2 lakh rupees. Once IIFL Finance is allowed to give out gold loans again, it said it would follow this rule.
A research analyst, Abhijit Tibrewal, thinks that because the RBI has banned some things that financial institutions do, it might take about six months for the RBI to check everything and fix any problems they find. Even though IIFL Finance can’t give out new gold loans, it won’t affect how much money they collect from people or how much money they make from interest on existing gold loans. However, how long the ban lasts might affect how much money they make.
Also Read:
RBI Cautions Banks on Gold Loan Disbursals via Fintechs
Inheritance Tax Row: Nirmala Sitharaman Warns Inheritance Tax Could Reverse India’s Progress
RBI Halts Kotak Mahindra Bank’s New Credit Card Issuance and Online Customer Sign-Ups
