Financial inclusion cannot be used as a pretext for financial exploitation of customers: RBI Dy Guv tells NBFCs

Mumbai, Feb 8 (ANI): Reserve Bank of India (RBI) Deputy Governor Swaminathan Janakiraman addresses a press conference on monetary policy, in Mumbai on Thursday. (ANI Photo)
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Financial inclusion cannot be used as a pretext for financial exploitation of customers, said Swaminathan J, Deputy Governor, Reserve Bank of India, at a recent Conference of Non-Banking Financial Companies (NBFCs).

He emphasised that the NBFC sector must live up to its promise of inclusion by treating customers with dignity, transparency, and care.

Swaminathan observed that 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 — which is followed by aggressive recovery practices upon default.

“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,” he said at the Conference in which Chairpersons of the Audit Committee of the Boards, MDs & CEOs of NBFCs, and Statutory Auditors of NBFCs participated in Chennai.

He emphasised that 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.

The Deputy Governor emphasised that even as NBFCs pursue scale, speed, and profits, they must not lose sight of fairness to the customer — that is the cornerstone of a sustainable business model.

“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,” he said and called for strengthening both internal and external assurance mechanisms.

Swaminathan said the business model of NBFCs — while effective — comes with its own set of structural risks. Their funding is short-term as compared to the maturity of their lending or is directed towards higher-risk customer segments.

“This maturity and credit transformation is at the heart of the NBFC model — but it also demands a heightened focus on risk management. If not carefully managed, it can create vulnerabilities, especially during periods of market stress or liquidity shocks.

“Risk taking must be intelligent and well planned, and never beyond the risk absorption capacity of the entity concerned. Liquidity and credit risks must be rigorously assessed and managed,” the Deputy Governor said.

He underscored that asset-liability mismatches, nature and tenor of the funding sources, and concentration risks all need board-level oversight which should be ably supported by robust internal controls.