A missed installment can invite Rs5000 as cheque bouncing charge
CL Jose
MUMBAI: It’s an undeniable truth that the number of borrowers complaining against the exorbitant interest rates charged by the non-banking financial companies (NBFCs) is increasing by the day.
A Thrissur-based small-time businessman told businessbenchmark.news that these NBFCs charge interest rates through the nose with gay abandon, especially on business loans.
The saddest part is that if an installment cheque happens to bounce, then he’s in serious trouble.
“However small the loan and installment be, he will have to shell out Rs5000 extra as cheque bouncing charge alone, and this is over and above the penalty charged by the bank for the returning cheque,” he said.
This may not apply to all NBFCs as a class, but the punishment for missing an installment is severe with all NBFCs for that matter.
What RBI says
But RBI though hasn’t fixed any ceiling on the interest rate on the loans disbursed by these NBFCs, is certainly not game for the excessive rates charged by these NBFCs.
Though there doesn’t exist any directive from RBI that talks about a particular interest ceiling on NBFC loans, the regulator seems to be a bit perturbed by the high rates charged by certain NBFCs.
Swaminathan J, deputy Governor of RBI, has warned NBFCs against charging excessive interest and reminded them of supervisory scrutiny if they continue to charge excessive rates while addressing a conference of NBFCs recently.
While acknowledging that RBI has given the liberty of benchmarking and pricing of loans to the boards of NBFCs, he brought up the point that ‘the Master Directions in this regard clearly state that rates beyond a certain level may be seen to be excessive, which can neither be sustained nor be considered as conforming to normal financial practice’.
“Therefore, excessive rates will invite supervisory scrutiny,” he pointed out.
It’s infamously well-known that the unsuspecting borrowers approaching NBFCs for their loan requirements are charged very high, even at rates as high as 35 and 36 per cent by a few of them, but as they find these NBFCs as their last resort, they are left with no choice, but to swallow the bitter pill.
Charges are indeed high
Exorbitant rates charged by some NBFCs on business loans, according to Paisabazaar include the following entities – Bajaj Finserv (up to 30 per cent); HDB Financial Services (up to 36 per cent); LendingKart (up to 27 per cent); NeoGrowth Finance (up to 24 per cent); Ugro Capital (up to 36 per cent).
Even there are leading banks that charge rates as high as 27 per cent for business loans
NBFC shares on the rise
Notwithstanding the increasing displeasure with NBFCs, the share of the credit portfolio controlled by NBFCs has increased significantly from one-sixth of the magnitude of bank credit a decade ago to one-fourth of the bank credit.
And much of this increase has happened in the last three years, according to Swaminathan J.
“Indeed, NBFCs have emerged as a preferred option for numerous underserved sectors, particularly small businesses, and households, due to their ability to provide more ‘feet on the street’ and customer-friendly credit solutions,” added the RBIJ deputy Governor.
