The Reserve Bank vide its master circular dated September 28, 2006, issued guidelines on Fair Practices Code (FPC) for all NBFCs to be adopted by them while doing lending business. The guidelines inter alia, covered general principles on adequate disclosures on the terms and conditions of a loan and also adopting a non-coercive recovery method. The same was revised in view of the recent developments with sector including creation of New Category of NBFCs viz; NBFC-MFI and also the rapid growth in NBFCs lending against gold jewelry. Revised circular RBI/2015-16/16 DNBR (PD) CC.No.054/03.10.119/2015-16 dated 1st July 2015.
|Regulation of excessive interest charged by NBFCs|
(a) The Board of each NBFC shall adopt an interest rate model taking into account relevant factors such as cost of funds, margin and risk premium and determine the rate of interest to be charged for loans and advances. The rate of interest and the approach for gradations of risk and rationale for charging different rate of interest to different categories of borrowers shall be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter.
(b) The rates of interest and the approach for gradation of risks shall also be made available on the web-site of the companies or published in the relevant newspapers. The information published in the website or otherwise published should be updated whenever there is a change in the rates of interest.
(c) The rate of interest should be annualized rate so that the borrower is aware of the exact rates that would be charged to the account.
|Rate of interest:|
|Approach for gradation of risk:|
The rate of interest is arrived at based on the weighted average cost of funds, administrative costs, risk premium and profit margin. The decision to give a loan is assessed on a case to case basis, based on multiple parameters such as borrower profile and repayment capacity, borrower’s other financial commitments, past repayment track record if any, tenure of the loan, geography (location) of the borrower, end use of the asset etc. Such information is collected based on borrower inputs and field inspection by the company officials.
|As per RBI Guidelines:|
i. The margin cap for all NBFCs irrespective of their size was 12 per cent till March 31, 2014. However, with effect from 1st April, 2014 margin caps as defined by Malegam Committee may not exceed 10 per cent for large MFIs (loans portfolios exceeding Rs.100 crore) and 12 per cent for the others.
ii. With effect from the quarter beginning April 01, 2014, the interest rates charged by an NBFC-MFI to its borrowers will be the lower of the following:
A ) The cost of funds plus margin as indicated in para (i) above; or
B.) The average base rate of the five largest commercial banks by assets multiplied by 2.75. The average of the base rates of the five largest commercial banks shall be advised by the Reserve Bank on the last working day of the previous quarter, which shall determine interest rates for the ensuing quarter. The table below shows the applicable base rates:
|Quarter beginning with||Quarter, FY||Avg. of base rates of 5 largest commercial banks (%)||Link||Avg. of base rates X 2.75 (%)|
|Circular dated Feb, 7 , 2014||Click Here|
|Quarter beginning July 1, 2014||Q2, 2014-15||10.09||Click Here||27.75|
|Quarter beginning Oct 1, 2014||Q3, 2014-15||10.09||Click Here||27.75|
|Quarter beginning Jan 1, 2015||Q4, 2014-15||10.09||Click Here||27.75|
|Quarter beginning April 1, 2015||Q1, 2015-16||10.09||Click Here||27.75|
|Quarter beginning July 1, 2015||Q2, 2015-16||9.89||Click Here||27.2|
|Quarter beginning Oct1, 2015||Q3, 2015-16||9.82||Click Here||27.01|
|Quarter beginning Jan 1, 2016||Q4, 2015-16||9.45||Click Here||25.99|
|Quarter beginning Apr 1, 2016||Q1, 2016-17||9.44||Click Here||25.96|
|Quarter beginning July 1, 2016||Q2, 2016-17||9.44||Click Here||25.96|
|Quarter beginning Oct 1, 2016||Q3, 2016-17||9.44||Click Here||25.96|
|Quarter beginning Jan 1, 2017||Q4, 2016-17||9.41||Click Here||25.88|
|Quarter beginning Apr 1, 2017||Q1, 2017-18||9.35||Click Here||25.71|
|Quarter beginning July 1, 2017||Q2, 2017-18||9.22||Click Here||25.35|
|Quarter beginning Oct 1, 2017||Q3, 2017-18||9.06||Click Here||24.915|
|Quarter beginning Jan 1, 2018||Q4, 2017-18||8.96||Click Here||24.64|
|Quarter beginning April 1, 2018||Q1, 2018-19||8.99||Click Here||24.72|
|Quarter beginning July 1, 2018||Q2, 2018-19||8.92||Click Here||24.53|
The rates of interest are subject to change as the situation warrants and are subject to the discretion of the management.