Rate of interest in NBFC Company

Though interest rates are not regulated by RBI, rates of interest beyond a certain level may be seen to be excessive and can neither be sustainable nor be conforming to normal financial practice. Advising the Boards of NBFCs to lay out appropriate internal principles and procedures in determining interest rates and processing and other charges, the Reserve Bank of India, vide its Master Circular on Fair Practices Code being No. RBI/2010-11/25 DNBS (PD) CC No.185/03.10.042 /2010-11 dated July 01, 2010 directed that:

(a)    The Board of each NBFC shall adopt an interest rate model taking into account relevant factors such as, cost of funds, margin and risk premium, etc and determine the rate of interest to be charged for loans and advances. The rate of interest and the approach for gradations of risk and rationale for charging different rate of interest to different categories of borrowers shall be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter.

(b)    The rates of interest and the approach for gradation of risks shall also be made available on the web-site of the companies or published in the relevant newspapers. The information published in the website or otherwise published should be updated whenever there is a change in the rates of interest.

(c)    The rate of interest should be annualised rates so that the borrower is aware of the exact rates that would be charged to the account.

Ozg NBFC Consultant

Ozg Center, New Delhi & Mumbai 

Phone # 09811415831-37-61-72-84-92-94