The Role of RBI in Cracking Down Firms Practicing Obscure Lending

RBI is the watchdog of the Indian financial system, and it checks the practices of banks and other NBFCs on how they lend and collect deposits from customers. In recent times, RBI has noticed some red flags in some of the NBFCs, which practice predatory lending where it changes excessive interest rates from the borrowers and passes loans without checking the repayment capacity of the borrower. 

RBI stopped these firms from lending further and only allowed them to service the existing loans. And showed concerns over such practices and is working on finding such loan approaches that can bring deep financial trouble for the borrower in the future. 

Therefore, an individual should take suggestions from an agent through the One Andro DSA app and get the right lender that can provide loans at a much lower interest. 

In this blog, we will follow some of the approaches of RBI and how the institution is working to stop such lending practices that are detrimental to an average customer who doesn’t have a high-income profile. 

Focus on the Balanced Credit Access to the Borrowers 

RBI works to provide an advanced banking system to the people of the country and also provides the best output by putting technology at the forefront and incorporating fair practices that are effective for the customers of the country. 

One such important paradigm is access to credit. For a country like India, where still majority of the people live in an agrarian society, the availability of loans is hard for them. RBI now approaches bringing a traditional banking system even in the rural parts, and for that, they have measured certain checks and balances. 

For example, it wants people can have the service of credit at a fair cost and end the practices of loan sharks, where they used to charge a high interest on the loan amount and therefore increase the pressure on the poor farmers and other artisans. 

Hence, RBI flags all those lenders and institutions that don’t adhere to the guideline of fair credit access and breach the contract, which leads to the suspension of their activities. 

Approaching Institutions to Follow Transparent Lending Practices 

Now, RBI follows a few norms and expects the financial institutions to go through the same approach where it follows the right lending activities. RBI wants the lenders to follow the detailed code of conduct and provide the right financial metric that allows the NBFCs and banks to show that they are practicing fair processes and contributing to the trust of the consumer. 

Reducing the Cost of Lending For Borrowers 

Another primary focus of RBI is to reduce the lending cost of the borrowers, and through that, one can get a higher loan amount without paying a lot in the processing fee. RBI is stepping up the rules where it can address unreasonable interest rates and stop the potential lenders that are taking a lot of processing fees in the process. 

The cost of lending is important as many people can fall into the vulnerable group where they can fall prey to the debt trap. Predatory lending is one such practice that causes a lot of financial trouble for the weaker section of the population, and now, to cater to that, RBI is bringing a systematic regulation system where it checks the interest rate and other aspects of a lender and can flag a warning when it reaches a certain threshold. 

How These Approaches Affect the Business of the Lenders 

Now, the temporary probe of the business is such that the lenders can find the temporary ban a sudden stop in the business, and that can affect the condition of the firm. For example, the temporary ban on apps like Navi and the ban on Paytm’s Payments Bank are some of the major examples, where lenders got affected. 

A person these days can visit the One Andro app or some other third-party DSA agent who can find the right lender. Now, for a lender that suddenly stops operations, it’s a loss of opportunity to gain customers. After the removal of the ban, it further gets tough to increase the customer base after that.  

Finally, RBI plays the role of mediating the balance between regulations, and thus, one can gain insights from their action.