Context:
The Reserve Bank of India (RBI) has cautioned NBFCs, Microfinance Institutions (MFIs), and Housing Finance Companies (HFCs) against aggressive expansion without strong risk management frameworks and sustainable business practices.
Key Highlights:
- Concern raised over high return-on-equity chasing, leading to excessive interest rates, high processing fees, and penalties—posing risks to financial stability.
- RBI urged NBFCs to:
- Adopt a compliance-first culture.
- Follow Fair Practices Codes strictly.
- Address customer grievances effectively.
- Review compensation and incentive structures to prevent poor service and unethical practices.
Significance:
- Ensures prudent lending and risk management.
- Protects financial stability and consumer interests.
- Encourages responsible growth in the NBFC sector.
