RBI Directs NBFCs to Adhere to Rs 20,000 Cash Limit for Gold Loans

The Reserve Bank of India (RBI) has recently reinforced regulatory measures to ensure that non-banking financial companies (NBFCs) adhere to a cash loan disbursement limit of Rs 20,000.

Despite the prohibition against disbursing cash loans over Rs 20,000, some NBFCs have been circumventing this rule by requiring customers to sign indemnity agreements to assume liability against income-tax actions.

In an advisory issued to gold loan financiers and microfinance entities earlier this week, the RBI reiterated the necessity of adhering to Section 269SS of the Income Tax Act. This section stipulates that individuals cannot accept deposits or loans in cash beyond the specified limit of Rs 20,000.

This advisory follows the RBI’s recent action against IIFL Finance, which was barred from sanctioning or disbursing gold loans due to significant supervisory concerns. An inspection revealed serious deviations in the assaying and certification of gold used as collateral, as well as irregularities in the auction processes upon default.

These regulatory measures by the Reserve Bank of India aimed at various banks, Non-Banking Financial Companies (NBFCs), and fintech firms highlight the regulator’s strong focus on creating a balanced and resilient financial ecosystem. These measures address critical areas such as lending practices, IT governance, credit expansion, non-performing assets (NPAs), and provisioning.