New Delhi, October 9
The Reserve Bank of India (RBI) Governor Shaktikanta Das has cautioned Non-Banking Financial Companies (NBFCs) that give incentives and fixed targets for granting loans to their employees.
RBI Governor Shaktikanta Das, while announcing the monetary policy on Wednesday, emphasized that such practices could negatively impact customer interests and lead to an unhealthy work culture.
"The Reserve Bank is closely monitoring these areas and will not hesitate to take appropriate actions if necessary. Self-correction by NBFCs would, however, be the desired option." Said RBI Governor
The Governor pointed out that some NBFCs are offering compensation structures, including variable pay and incentives, that are purely target-driven. He expressed concern that these practices could create a high-pressure work environment, which may result in poor customer service.
"NBFCs may refute their prevailing compensation practices, variable pay, and incentive structures, some of which appear to be purely target-driven in certain NBFCs. Such practices may result in adverse work culture and poor customer service" Das stated.
He urged NBFCs, including microfinance institutions (MFIs) and housing finance companies, to prioritize sustainable business goals and foster a compliance-first culture. This includes maintaining strong risk management frameworks and adhering to fair practices in customer dealings.
"It is important that NBFCs, including MFIs and housing finance companies, follow sustainable business goals, a compliance-first culture, a strong risk management framework, a strict adherence to fair practices code, and a sincere approach to customer grievances," said Das, while also suggesting that self-correction by NBFCs would be the preferred route.
Governor Das said that while the health of NBFCs is good, but raised concerns about some NBFCs that are aggressively pursuing growth without focusing on building sustainable practices. He noted that some NBFCs, driven by significant capital inflows from both domestic and overseas sources, are chasing excessive returns on equity. In doing so, they may charge high interest rates, impose hefty processing fees, and levy unreasonable penalties, which can harm customers.
"While such pursuits are in the domain of the boards and management of NBFCs, concerns arise when interest rates charged by them become usurious and get combined with unreasonably high processing fees and frivolous penalties" the governor added.