The Reserve Bank of India is thinking about setting rules for interest rates for NBFCs similar to those for banks. This change aims to make loan pricing clearer and improve how monetary policy works. The RBI wants borrowers to benefit more from rate changes by moving away from old prime lending rate models. The central bank also plans to strengthen oversight and review fair interest practices among NBFCs.
To close policy gaps and improve transparency, the RBI is exploring interest rate rules for NBFCs that mirror bank regulations, reports The Times of India. The goal is to make monetary policy transmission smoother. It also seeks to ensure borrowers see more benefit when the RBI adjusts benchmark rates. Currently, banks link floating rates to external benchmarks like the repo rate, but many NBFCs still depend on outdated prime lending rates. This results in slower or less clear rate changes.
The RBI’s annual report said that rules on interest rates differ between financial firms. The regulator is now reviewing these rules thoroughly. It plans to gather public feedback by releasing a discussion paper. This paper will explain why moving to a unified system makes sense.
To progress on this front, the RBI has been talking to industry experts and stakeholders. Suresh Ganapathy from Macquarie noted that banks have well-defined rate systems like the repo-linked loans and MCLR. These make it easy to see how rates change. In contrast, NBFCs still rely on old PLR systems, which makes things unclear. Better alignment is necessary.
The central bank also wants to improve how it supervises NBFCs. It will review its risk-based supervision methods. The focus is on making sure anti-money laundering rules and KYC norms are followed, especially for high-risk companies.