RBI Guv asks NBFC-MFIs to be wise in using flexibility on interest rates

RBI Governor Shaktikanta Das on Wednesday stated that some non-banking finance companies and microfinance institutions (NBFC-MFIs) are making wider net interest margins and asked entities to be “prudent” in using the flexibility on interest rates they charge from borrowers.

Speaking at the annual Fibac event, Das said the microcredit segment serves marginalized customers and has emerged as an important financial channel to promote financial inclusion.

“Although interest rates have been deregulated, certain NBFC-MFIs appear to be enjoying relatively higher net interest margins. Indeed, it is up to the microfinance providers themselves to ensure that the flexibility afforded to them in fixing interest rates is used judiciously,” he said.

It may be noted that after the crisis in the microfinance segment in Andhra Pradesh, which had also led to the creation of the NBFC-MFI segment, the Reserve Bank of India (RBI) had limited the maximum interest rate that lenders could charge to 24 percent. . The charging regime was deregulated in 2021, making it possible for entities to charge as much as they wanted.

Das acknowledged that such entities should take into account the affordability and repayment capacity of the borrowers while fixing their interest rates.