RBI Tightens Reins: New Guidelines to Ensure Fair Lending and Financial Inclusion

The Reserve Bank of India has introduced new guidelines to prevent excessive charges on small loans under priority sector lending. These measures, effective in 2025, aim to protect small borrowers, ensure fair lending, and foster financial inclusion by directing funds to sectors that need them most.

The Reserve Bank of India (RBI) has announced stringent measures to curb excessive charges on small loans, especially those under the priority sector lending (PSL) category. Effective April 1, 2025, banks will be prohibited from levying loan-related and ad hoc service charges on priority sector loans up to Rs 50,000, as stipulated in the new Master Directions on PSL.

In a bid to streamline lending to sectors in genuine need, the RBI has also stated that loans against gold jewellery acquired by banks from Non-Banking Financial Companies (NBFCs) will not be classified under the priority sector lending category. This ensures that PSL funds are directed toward critical sectors like small businesses, agriculture, and weaker societal sections.

Strengthening the compliance framework, banks must now report their priority sector advances quarterly and annually to enhance transparency. Additionally, banks failing to meet PSL targets will contribute financially to the Rural Infrastructure Development Fund (RIDF) and other schemes. This approach aims to ensure financial contributions persist even if direct lending obligations fall short, thereby supporting the nation's socio-economic development goals.

(With inputs from agencies.)