The Reserve Bank of India (RBI) has now put into practice an important rule for non-banking financial companies (NBFCs). This new instruction lays down that no NBFC can now give cash loans in excess of Rs 20,000 to its customers. The whole idea behind this is to bring transparency to the financial system and to discourage irregularities.
Complete Information Regarding The New Rule:
Under section 259SS of the Income Tax Act 1961, cash loans in excess of Rs 20,000 were always banned. Now, the RBI has decided to enforce the rule more strictly in order to enable financial discipline within the NBFCs and to encourage digital payments.
Reasons For Implementing The New Rule:
With some NBFCs violating the very essence of rules, the RBI strictly took this decision on account of such behaviour. Lately, IIFL Finance was accused of being a rebel and issuing cash loans beyond the prescribed limits. The RBI consequently decided to safeguard against any similar acts.
What Was The Accused Doing Behind IIFL Finance?
RBI very seriously leveled several scrupulous charges against IIFL Finance-
- Cash violations above Rs. 20,000.
- Not properly verifying the purity of gold.
- There were not enough transparent procedures in the auction process.
- Mistrustfully overcharging customers.
RBI then decided to step up the level of strictness in the NBFC-sector.
Effect Of The New Rules
Henceforth, with this new rule, NBFC will have to edit its distribution system for the given loans. All loans above Rs 20,000 will thus be disbursed solely through digital transactions and checks. This, besides being an action to ameliorate transparency, will also check the irregularities from perpetration.
This RBI directive is a major step towards reforming the NBFC sector. Hence, no NBFC will be able to give a cash loan above Rs 20,000, and all such big-ticket loans will only be disbursed through the digital medium or cheque. This will ensure that customer interests are safeguarded and the entire financial sector made very transparent.
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