The Madras High Court Bench here on Friday held that the Reserve Bank of India could not “wash its hands of” the issue of private non-banking financial companies (NBFCs), such as Manappuram and Muthoot Finance, charging exorbitant interest on gold loans.
Disposing of a public interest litigation petition filed by advocate A.R. Jeyarhuthran, the First Bench of Chief Justice Sanjay Kishan Kaul and Justice V. Dhanapalan directed the RBI to look into complaints against the NBFCs in a proper perspective.
The court also quashed the RBI’s communication that it did not regulate or fix interest rates to be levied by the NBFCs registered with it, and interest rate would be governed only by the terms and conditions of the loan agreement between borrowers and the companies.
Writing the judgment, the Chief Justice said the RBI should keep a tab on the interest rates charged by the NBFCs since most of the borrowers were uneducated people who took out loans for their personal needs by pledging gold jewels.
Pointing out that the country had a history of moneylenders who charged exorbitant interest, leaving many families in poverty, he said nationalisation of banks was among the steps taken by the Centre to control financial institutions.
The Chief Justice said the aim of the Centre now could not be “to create a new class of moneylenders labelled as financial corporations” and the RBI’s communication was in violation of its circulars that asked the NBFCs to adopt a ‘fair practices code.’
The Bench also recorded the submission of Assistant Solicitor-General G.R. Swaminathan, who appeared for the Union Finance Ministry, that authorities would look into the issue and ordered that action be taken within three months.
