New Delhi. The Reserve Bank of India (RBI) has issued strict instructions for non-banking financial companies (NBFCs), stating that no NBFC can give a cash loan of more than Rs 20,000 to any customer. This is in line with Section 269SS of the Income Tax Act, 1961, which prohibits individuals from obtaining cash loans exceeding Rs 20,000. According to reports, RBI wants to strictly enforce this rule to prevent NBFCs from violating the rules. The direction comes at a time when IIFL Finance, an NBFC company, has been accused of violating several rules. Some companies were found to be exceeding legally mandated loan limits and collecting payments in cash.
The RBI directive aims to ensure compliance with the rules and prevent malpractices by NBFCs. Recently, RBI has taken action against several NBFCs for violating its regulations including exceeding cash credit limits. By reminding NBFCs of the rules, RBI wants to curb negligence and ensure compliance with the rules.
Why was action taken against IIFL Finance? The central bank directed IIFL Finance to immediately stop its gold loan operations to new customers due to significant deficiencies in its loan management. Gold loan operations contribute significantly to the company’s business, accounting for one-third of its operations. The finance company was found to be flouting rules regarding purity and weight of gold, excessive cash loans, deviation from standard auction procedures and lack of transparency in customer account charges.