Union Minister of Finance Nirmala Sitharaman has said that non-banking financial companies (NBFCs) need to adopt ethical, fair and respectful procedures for recovering their bad loans.
During her interaction with NBFC officials, she said the recovery process should be carried out in compliance with the Reserve Bank of India's Fair Practices Code and without any kind of coercion or disrespect towards borrowers.
She pointed to recent cases in which borrowers of small-ticket loans, even as low as Rs 500, were reportedly being subjected to aggressive recovery tactics. She added that NBFCs should put in measures to ensure that such incidents do not occur. Also, recovery agents should be trained to ensure they communicate with borrowers in a professional and respectful manner.
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Credit Flow to the Priority Sector
Apart from issues related to recovery of loans, Sitharaman also emphasised the contribution of NBFCs in providing credit to the priority sector.
She noted that banks often leave portions of their priority sector lending targets unfulfilled during the financial year. These are normally transferred to financial institutions for refinance, which might lead to credit getting delayed for the target beneficiaries. In response to this, she proposed that NBFCs might collaborate with banks to facilitate the timely release of loans under the priority sector requirement.
Call for Transparency and Responsible Lending
Sitharaman also referred to the necessity of lending transparency. She said that all terms, charges and conditions must be communicated to borrowers when disbursing loans. The decision to lend, she further said, must be based on the repayment ability of the borrower, instead of just depending on technology-based credit ratings.
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Emphasis on Grievance Redressal and Rate Transmission
She added that NBFCs that undertake online lending must have proper grievance redressal channels and ensure transmission of the interest rate cuts initiated by the central bank to the consumers, as the case may be.
She said strengthening regulatory expectations on ethical behaviour in the NBFC segment and enhancing coordination among financial institutions will aid in credit penetration in the underserved sections of society.
