New Delhi, Feb 12 (KNN) Reserve Bank of India (RBI) Deputy Governor M. Rajeshwar Rao has strongly criticised Microfinance Institutions (MFIs) for imposing higher interest rates on borrowers, warning against irresponsible practices within the sector.

Expressing concern, Rao highlighted instances where certain MFIs have significantly increased their profit margins under the new regulatory framework, cautioning that any misuse of regulatory freedom would result in regulatory intervention.

In 2021, the RBI granted entities full autonomy over interest rates for microloans by lifting the previous cap of 24 per cent.

However, Rao emphasised the need for responsible lending practices, noting that while lenders swiftly passed on increased costs to borrowers, they were hesitant to extend the benefits envisioned under the new framework.

Additionally, Rao addressed concerns regarding Non-Banking Finance Companies (NBFCs) advocating for bank-like status, emphasising that NBFCs play distinct economic roles and should not aim to emulate banks.

He further highlighted issues within peer-to-peer (P2P) lending among NBFCs, pointing out deviations from regulatory guidelines.

Rao stressed the importance of educating lenders about credit risks and condemned any breaches of licensing conditions or regulatory standards within the NBFC-P2P sector.

He warned against downplaying risks to lenders and reiterated the RBI's commitment to upholding regulatory integrity and consumer protection.

(KNN Bureau)