RBI Asks NBFCs to Treat Customers with Dignity, Ensure Transparent Pricing

Chennai, Apr 10 (PTI) RBI Deputy Governor Swaminathan J has asked the NBFCs to treat customers with dignity and ensure easy-to-understand pricing, free from hidden charges.

Addressing a Conference of Non-Banking Financial Companies here on March 28, the Deputy Governor said the NBFC sector must live up to its promise of inclusion by treating customers with dignity, transparency, and care.

"This entails ensuring transparent and easy-to-understand pricing, free from hidden charges or usurious interest rates. In instances of default, recovery practices must be conducted in an empathetic and respectful manner," Swaminathan said.

Unfortunately, some NBFCs think they can pursue a business model, where it is par for the course to resort to weak underwriting in pursuit of quick growth, coupled with excessive and unsustainable interest rates -- at times masked as upfront charges or processing fees -- followed by aggressive recovery practices upon default, he added.

"Let me state unequivocally. This is not an acceptable model. Financial inclusion cannot be used as a pretext for financial exploitation. I urge each one of you to commit your institutions to upholding fairness in all your dealings," the senior official said.

This responsibility for fair conduct is a shared commitment by the CEO, the Board, and assurance functions in any entity. A customer-centric culture must be driven from the top and embedded at all levels, Swaminathan said.

In his address, the Deputy Governor also spoke on the role of the Audit Committee of the Board (ACB).

Far from being a routine compliance requirement, the ACB is the lynchpin of institutional oversight and long-term financial health, he noted.

It plays a critical role in reinforcing governance, guiding management on assurance, and ensuring the integrity of internal control systems.

When functioning effectively, it becomes a proactive forum for identifying vulnerabilities and initiating timely corrective actions, Swaminathan said.

The role of the Audit Committee Chairperson is particularly significant in setting the tone for effective governance. It is essential that committee meetings are held regularly, conducted with clear purpose, and thoroughly documented to ensure accountability and follow-through, he added.

"Our shared vision is clear: a dynamic, inclusive, and trusted NBFC sector that complements the banking system and serves the evolving needs of the Indian economy. And the way to achieve it is through shared responsibility — in governance, in customer protection, in financial prudence, and in ethical conduct," he said.

The importance of NBFCs has only grown with time. In fact, over the past decade, their growth has consistently outpaced that of banks -- a trend that has become even more pronounced in the last few years.

This rapid growth is a testament to the sector's relevance and resilience -- but it also raises the stakes, he added.