The Reserve Bank of India (RBI) has cautioned lenders, especially in the microfinance sector, against charging excessively high interest rates. The RBI observed that while most lenders follow guidelines regarding loan information disclosure, some still impose undisclosed fees and high interest rates, particularly on small loans provided by microfinance institutions (MFIs) and non-banking financial companies (NBFCs).
The Key Facts Statement (KFS) is meant to provide borrowers with essential loan details in a clear format. It includes information like the annual percentage rate (APR) and any additional charges, which should be disclosed separately.
Since 2012, the RBI has regulated interest rates and fees charged by MFIs. This came after instances where MFIs faced difficulties due to state regulations, which led to some going out of business. To address this, the RBI formed a committee and recommended caps on interest rates. Despite impacting their profitability, some companies have accepted these regulations.
The RBI continues to engage with financial entities to protect customer interests and maintain overall financial stability. Last year, the RBI increased risk weights on unsecured consumer credit and bank credit to NBFCs to mitigate potential risks, leading to a decline in credit growth in these segments.
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