Well, this is not a commentary on - ‘Usury’ - but the word is the important context of recent RBI action against few entities.
Usury, the practice of charging excessively high interest on loans, has been condemned throughout history and across various cultures and religious traditions. In Hinduism, ancient texts explicitly forbid the exploitation of borrowers through excessive interest rates, reflecting the broader principle of ethical conduct in financial dealings. Christianity, particularly through the teachings of the Bible, strongly denounces usury. In the Old Testament, the Book of Exodus prohibits the charging of interest to the poor, and in the New Testament, Jesus’s expulsion of moneylenders from the temple is often cited as a critique of financial exploitation. Similarly, Islamic law under Sharia strictly forbids any form of interest, viewing it as a violation of justice and equity.
Usury has historically been seen as a threat to social harmony, fostering inequality and creating economic burdens that destabilise the most vulnerable. In societies governed by civil order, the rejection of usury reflects a shared moral understanding that fairness and justice must underpin financial systems. In modern financial markets, this always has a point about what is ‘fair’ interest rate to be charged ? How much of profits should an entity make from lending activities ?
At the heart of the RBI’s recent intervention is the excessive pricing of loans, which has been an issue among some lenders, both legitimate and otherwise. The RBI’s concerns, particularly around the weighted average lending rate (WALR) and excessive interest spreads, are significant. The regulator has consistently demanded transparency in pricing, without any hidden fees or charges, yet it surprises that lenders who fail to adhere to this in practice don’t seem to be worried that a RBI inspection would reveal those. Beyond pricing, the violations observed span non-compliance with household income assessments, breaches in income recognition and asset classification norms, and a potential worry of evergreening loans.
Additionally, some of the lenders have been found guilty of aggressive marketing tactics, flooding consumers with loan offers and resorting to predatory collection methods. One particularly troubling practice that regulators worry about is the accessing of data from borrowers’ mobile phones, raising serious privacy concerns. These actions have morphed traditional usury into a more modern, digital form of exploitation. Such tactics are neither new nor innovative—they are simply unacceptable, as they prey on borrowers already struggling with financial burdens.
However, this regulatory action has generated significant chatter within the industry. Some investor lobbies, including few advocating foreign investors, are quick to question the wisdom of India’s regulatory framework, suggesting that India is uniquely harsh in capping interest rates, which could potentially deter future investments in the banking sector, including in-the-pipeline M&As.
But such a reaction is both exaggerated and misinformed. India’s regulatory environment is crafted with the specific aim of protecting the financially vulnerable. Those who argue otherwise show a troubling detachment from the reality of India’s borrowers—many of whom lack the economic power to advocate for themselves. We are better off not having those investors who don’t understand this and try to undermine the safety net for Indian consumers. The regulator has not imposed caps on interest rates but insists on fair pricing and transparency in lending practices, particularly for small-value loans.
Instead of fretting over regulatory actions, the industry should simply focus on ensuring their business practices are compliant and centred on the consumer. Why is it so difficult to follow ? When fairness and transparency are prioritised, everything else—growth, trust, and sector stability—will naturally follow. To those having a meltdown over the RBI’s actions, remember this: a license to operate in a regulated sector isn’t a birthright or a right-to-buy—it’s a right that’s earned and deserved by your operating character.
The worry that the RBI will hinder the growth of non-banking financial companies (NBFCs) is nothing more than a false narrative and even a malicious gossip. As the central bank, the RBI anyways holds the authority to revoke the licenses of any entity that fails to adhere to its regulations and code of conduct. In a country like India, where a significant portion of the population remains unbanked or underbanked, the RBI would rather help in expansion of lending sector. However, this growth must be stable, responsible, and aligned with consumer protection. It is another issue that hopefully the RBI would address ahead, in culling those thousands of NBFCs which have simply hoarded their licences without actual any operations or lending to the consumers.
Another flawed narrative circulating is that this move by the RBI targets fintech firms that serve subprime borrowers, offering unsecured loans at higher interest rates. This argument misses the point entirely. The action is not about fintechs or traditional NBFCs—it is about behaviour. The RBI’s mandate is to ensure that no entity, irrespective of its business model, exploits consumers. Whether loans are dispensed through a branch, a digital app, or a co-lending platform is irrelevant; the regulator is concerned with the integrity of the process.
Those familiar with financial business understand that lending is fundamentally about pricing risk and managing operational costs within that framework. Interest rate fluctuations are a part of this equation, and they affect both borrower behaviour and the lender’s approach to recoveries. However, these challenges do not justify the adoption of unfair practices. The RBI’s supervisory reports, which only the entity involved and the regulator will be privy to, are likely to reveal deeper insights into the exact nature of these violations, but at a high level, the message is clear: the regulator expects fair and transparent lending.
The RBI’s close monitoring of the sector is a positive step towards ensuring fair lending practices and shielding borrowers from exploitation. It sends a clear message that consumer protection is paramount, and that building trust in the financial system requires greater transparency and ethical behaviour from all regulated entities. The regulator’s expectation is simple: the industry must step up and demonstrate a much higher standard of conduct than what has been observed thus far.
Lenders should remember that the essence of responsible finance is fairness. For those in the financial sector, the lessons are clear. Usury, in any form, is misery. The path forward for lenders is simple: conduct business transparently, treat borrowers fairly, and align with the regulator’s expectations. Anything less will no longer be tolerated.
(All views expressed are attributable only to the author)
Dr. Srinath Sridharan - Policy Researcher & Corporate advisor
X : @ssmumbai
