NBFCs say Reserve Bank of India’s new rules will work against financial inclusion, drive towards unscrupulous moneylenders

Wednesday, November 26, 2014

On a typical day, Rohit Bokhare makes about Rs 800 taking passengers in his Mahindra Xylo between Saki Naka in Andheri and Adlabs Imagica on the Mumbai-Pune expressway in Raigad district. The 51-year-old defaulted on repayment of the loan he took to purchase the utility vehicle for four months, which led his financier to come inquiring. Shriram Transport Finance, the non-bank finance company that financed the vehicle, last week found his Xylo lying in a garage for repair for 20-25 days, blocking his regular cash flow. To top it up, Bokhare had a repair bill of Rs 20,000-25,000. He couldn’t pay the EMIs in the previous months because of family exigencies.

NBFCs like Shriram Transport Finance could still wait for some more time to see if Bokhare is able to fix his problems and resume paying installments. That room, however, is shrinking because of a new rule on non-performing assets, or bad loans, that the Reserve Bank of India has introduced as part of efforts to tighten regulations on NBFCs.

These non-bank lenders have become a key source of loans for those who have risky credit profile and in places where banks don’t have a presence, though often the consumer’s cost of borrowing is higher compared with banks. Currently, NBFCs need to classify a loan as NPA if no interest is paid for 180 days. That period is set to become 90 days in phases by March 2018. NBFCs say this rule would make them more cautious before lending. People like Bokhare may not get organised credit and fall victim to unscrupulous moneylenders, they warn.

Source: The Economic Times (link opens in a new window)

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banking, financial inclusion, lending