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Compliance first! RBI Governor warns NBFCs against 'growth at any cost' approach

RBI Governor Shaktikanta Das warned NBFCs against charging usurious interest rates, unreasonably high processing fees and frivolous penalties.

RBI Governor Shaktikanta Das on Wednesday warned NBFCs against 'growth at any cost' approach, which would be counter-productive for their own health.

Das said that though the NBFC sector remains healthy overall, there are a few outliers who might be chasing growth aggressively. The governor pointed out that this is being done without building sustainable business practices and risk management frameworks, commensurate with the scale and complexity of their portfolio.

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He said there has been some recent commentary on the likelihood of stress build-up in some unsecured loan segments like loans for consumption purposes, micro-finance and credit cards. "The Reserve Bank is closely monitoring these areas and will not hesitate to take appropriate action, if necessary," cautioned the RBI governor.

Das pointed out that some NBFCs, including microfinance institutions (MFIs) and housing finance companies (HFCs), are going after "excessive returns on their equity". This is driven by the accretion to their capital from both domestic and overseas sources and under pressure from investors.

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The governor said self-correction is the desired option, urging NBFCs, including MFIs and HFCs, should follow a "compliance-first" culture and chase sustainable business goals. He asked the NBFCs to follow a strong risk management framework, fair practices and sincere approach to customer grievances.

Das also warned NBFCs against charging usurious interest rates, unreasonably high processing fees and frivolous penalties.

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