Consequences of not charging interest by nbfc

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Querist : Anonymous (Querist)

17 November 2012 what are the consequences if a nbfc does not charges interest on loan given by the company to parties

Ajay Mishra

Ajay Mishra (Expert)
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22 November 2012 Hi

The Reserve Bank vide its circular dated September 28, 2006, issued guidelines on Fair Practices Code (FPC) for all NBFCs to be adopted by them while doing lending business. The guidelines inter alia, covered general principles on adequate disclosures on the terms and conditions of a loan and also adopting a non-coercive recovery method.

A review of the guidelines is made in view of the creation of a new category of NBFCs viz; NBFC-MFIs and also rapid growth in NBFCs’ lending against gold jewellery. The revised guidelines issued under Section 45 L of the Reserve Bank of India Act, 1934 (Act 2 of 1934) and of all the powers enabling it in this behalf, in supercession of the CC dated September 28, 2006, is enclosed in the annex. The Guidelines have also incorporated the instructions issued vide CC No. 95 dated May 24, 2007 on ‘Complaints about excessive interest charged by NBFCs’ and CC No. 139 dated April 24, 2009 on ‘Clarification regarding re-possession of vehicles financed by NBFCs’ for reference.

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