The Reserve Bank of India (RBI) has reportedly asked non-finance banking companies (NBFCs) to strictly adhere to the cap of Rs 20,000 in cash loans, as per a letter seen by Reuters and two people familiar with the development. This move is aimed at deterring cash transactions.
The RBI's letter to NBFCs cites provisions of Section 269SS of the Income Tax Act, 1961, which stipulates that no individual can receive more than Rs 20,000 as a loan amount in cash. Consequently, no NBFC should disburse loan amounts exceeding Rs 20,000 in cash.
This action follows the RBI's directive to IIFL Finance to immediately halt its gold loan operations for new customers due to significant lapses in loan handling. IIFL Finance's gold loan operations account for a third of its business. The RBI cited inadequate checks on gold purity and weight, breaches of statutory limits on cash loans, deviations from standard auction processes, and lack of transparency in customer account charges as some of the lapses.
The RBI's actions against NBFCs come amid a surge in retail loans post the COVID-19 pandemic, prompting the regulator to take proactive measures.