RBI asks NBFCs to stick to Rs 20,000 cash loan payout limit: Report

The Reserve Bank of India (RBI) has reportedly asked non-finance banking companies (NBFCs) to stick to its rule of cash loan payout limit in a letter. 

As reported by Reuters, RBI has asked NBFCs to strictly adhere to the cap of Rs 20,000 in cash loans in a letter, as seen by the news agency, as well as two people aware of the development. This move comes as the central bank is aiming to deter cash transactions. 

"Please refer to provisions of Section 269SS of Income Tax Act, 1961, which stipulates that no individual can receive more than 20,000 rupees as loan amount in cash," the letter stated.

The RBI letter to NBFCs further stated: "Consequently, no NBFC should disburse loan amount in excess of 20,000 rupees in cash." 

This action comes after the central bank directed IIFL Finance to immediately halt its gold loan operations for new customers due to major lapses in loan handling. IIFL Finance’s gold loan operations account for a third of its business. Inadequate checks on gold purity and weight, breaches of statutory limits on cash loans, deviations from standard auction processes, and lack of transparency in customer account charges were some of the lapses cited by the RBI. 

The RBI’s actions against NBFCs come amid a surge in retail loans post COVID-19 pandemic that has prompted the regulator to take proactive measures.