Later, in 2012, the fixed interest rate ceiling of 26 per cent was removed while in April 2014 an additional criterion was introduced where in the lending rate was fixed at a multiple (2.75 times) of the average base rate of five largest commercial banks. 15. The regulatory ceiling on interest rate is applicable only to NBFC-MFIs.
The prescription of a ceiling on lending rate for NBFC-MFIs has had an unintended consequence of not allowing competition to play out. There is a concern that the current guidelines, while prescribing an interest rate ceiling for only NBFC-MFIs, are effectively acting as a benchmark for other lenders as well.