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RBI tells NBFCs to ‘strictly adhere’ to cash disbursal limits as per IT rules
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
CNBC-TV18 has seen a copy of the letter sent by RBI to NBFCs, which refers to Section 269 SS of the Income Tax Act, 1961, which stipulates that no individual can receive more than ₹20,000 as a loan amount in cash.
The Reserve Bank of India (RBI) on Wednesday (May 8) sent an advisory to select non-bank financial companies (NBFCs), asking them to strictly adhere to Income Tax rules on cash disbursal, weeks after the regulator imposed restrictions on IIFL Finance’s gold loans business for violating this norm, among others, CNBC-TV18 has learnt.
CNBC-TV18 has seen a copy of the letter sent by RBI to NBFCs, which refers to Section 269 SS of the Income Tax Act, 1961, which stipulates that no individual can receive more than ₹20,000 as a loan amount in cash. The regulator, in this letter, said, “No NBFC should disburse the loan amount in excess of ₹20,000 in cash, in no uncertain terms.”
RBI asked NBFCs to “strictly adhere” to these provisions of the Income Tax Act. The letter has been sent from the RBI’s Department of Supervision in Thiruvananthapuram, and addressed to NBFCs in the state of Kerala, where gold loan NBFCs are widely at play, said a person directly in the know. Among others, the letter has been sent to Manappuram Finance, as well as Muthoot Finance, two of the largest players in the gold-loan space, said a source in the know who did not wish to be quoted.
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The scale-based Master Directions for NBFCs clearly specify that non-banks must ensure compliance with the requirements under Sections 296SS and 269T of the Income Tax Act, 1981. Section 269T & 269SS of the Income Tax Act are enforced to ensure compliance with tax regulations around accepting and repaying loans and deposits. While Section 269SS deals with accepting loans, Section 269T deals with repayment of loans.
“RBI has been getting multiple queries from gold loan players about whether they really have to stick to the ₹20,000 cash disbursal limit after the IIFL Finance action,” said a person familiar with the matter, adding that the regulator has sent the letters to re-iterate the master directions on scale based regulation which state that NBFCs must follow the IT Act rules on cash disbursals and repayments.
While the regulator has not stated anything to indicate if any immediate action would be taken on entities not following directions, the letter is seen as a warning to lenders who may not be following these rules.
The RBI on March 4 had placed business restrictions on one of the largest gold-loan NBFC, IIFL Finance, “for significant disbursal and collection of loan amount in cash far in excess of the statutory limit,” among other reasons.
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As per industry sources, the practice of disbursing cash loans far in excess of this ₹20,000 limit is not an uncommon practice among gold loan NBFCs. When CNBC-TV18 raised this issue at the RBI’s last monetary policy press conference on April 8, that many players in the industry were doing cash disbursals in excess of the limit, Governor Shaktikanta Das replied, “We supervise all entities, all major entities. Wherever we see a problem, we first directly engage with the particular entity to see that corrective actions are taken. Where we see that the problems are huge or the problems are persistent, then only we act.”
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