RBI: According to reports, non-financial banking companies (NBFCs) have received a letter from the Reserve Bank of India (RBI) asking them to abide by its cash loan payout limit policy. According to Reuters and two individuals with knowledge of the development, RBI has instructed NBFCs to strictly abide by the Rs 20,000 cash loan cap in a letter that was seen by the news agency. The central bank is taking this action in an effort to discourage cash transactions.
RBI’s Directive on Cash Loan Limits
“Please refer to provisions of Section 269SS of Income Tax Act, 1961, which stipulates that no individual can receive more than 20,000 rupees as loan amount in cash,” the letter stated. Letter added that, “Consequently, no NBFC should disburse loan amount in excess of 20,000 rupees in cash.” Due to significant shortcomings in loan management, the central bank ordered IIFL Finance to immediately cease its gold lending operations for new borrowers.
Importance of Gold Loan Operations for IIFL Finance
A third of IIFL Finance’s business is made up of gold loan operations. The RBI listed a number of errors, including insufficient checks on the purity and weight of gold, violations of the statutory cap on cash loans, departures from the norm for auction procedures, and a lack of openness regarding customer account charges. The COVID-19 pandemic has resulted in an increase in retail loans, which has prompted the RBI to take proactive measures against NBFCs.
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