Upholding Dignity: FM Sitharaman Demands Fair NBFC Loan Recovery Practices

New Delhi, India – In a significant move to safeguard customer well-being and ensure ethical financial operations, Union Finance Minister Nirmala Sitharaman has delivered a powerful message to Non-Banking Financial Companies (NBFCs): their NBFC loan recovery practices must be fair, respectful, and empathetic, aligning strictly with the Reserve Bank of India’s (RBI) Fair Practices Code. Speaking at the NBFC Symposium 2025 in New Delhi, the minister underscored the critical need for a human-centric approach, especially concerning smaller loan amounts.

Minister Sitharaman’s address highlighted the growing concern over aggressive recovery tactics employed by some NBFCs. “Recovery practices of NBFCs must be fair, empathetic and respectful, in strict accordance with the RBI’s Fair Practices Code,” she asserted. She drew attention to heart-wrenching media reports detailing harsh measures taken even for trivial sums like Rs 500, acknowledging the media’s rightful role in exposing such incidents. “Sensationalized reporting in the media, which they are right in reporting… Where harsh measures are taken for recovery of a 500 rupee, heartbreaking stories come out,” she remarked, adding a poignant reminder: “I know for you it’s important and it’s part of your duty, but it’s not part of your duty to be heartless. You need to have better Fair Practices Code, aligning with RBI’s Fair Practices Code. So the same message, the push for growth should not come at the expense of customer well-being.” This firmly positions customer dignity at the forefront of NBFC loan recovery practices.

Reinforcing Ethical NBFC Loan Recovery Practices

The Finance Minister’s directive serves as a crucial reminder that while financial institutions are driven by the need for growth and recovery, these objectives must never compromise the dignity and well-being of their customers. The emphasis on the RBI’s Fair Practices Code aims to reinforce a standardized, ethical framework for NBFC loan recovery practices across the sector. This framework mandates transparent communication, proper grievance redressal mechanisms, and a respectful engagement approach, steering clear of intimidation or harassment.

NBFCs as Catalysts for Priority Sector Lending

Beyond the immediate concerns surrounding NBFC loan recovery practices, Sitharaman also broached a broader vision for the sector’s role in India’s financial ecosystem. She highlighted the substantial unutilized funds from priority sector lending by banks, which are annually redirected to institutions like NABARD and SIDBI. Questioning the efficacy of this process, she stated, “Why should the priority sector lending money be coming back to the secretary? It should be in the ground with the people for whom it was meant.”

The Minister proposed a powerful partnership: leveraging NBFCs, with their extensive reach and presence at the “last mile,” to enhance banks’ priority sector lending performance. “Is there a role that you can actively play through the NBFCs? You and the NBFCs together. Because they are there at the last mile. Can the priority sector lending performance of the banks be improved if you co-opt the NBFCs as your partners in this?” she inquired. This innovative suggestion seeks to bridge the gap between allocated funds and actual disbursement, ensuring timely credit delivery to intended beneficiaries.

Sitharaman invited the Reserve Bank of India to provide guidance on structuring such partnerships without compromising prudential norms. She pointed out that delays in disbursement, caused by funds returning to central institutions before re-issuance, lead to a loss of six to eight months for the end customer. This delay undermines the very purpose of priority sector lending.

The Future of Responsible NBFC Loan Recovery Practices

The Finance Minister’s address paints a clear picture for the future of NBFCs in India: one where robust growth is coupled with unwavering ethical responsibility. The focus on fair NBFC loan recovery practices is not merely a regulatory compliance issue but a fundamental aspect of building trust and fostering financial inclusion. By emphasizing empathy and strict adherence to RBI guidelines, the government seeks to create a lending environment that supports both economic dynamism and social equity.

Furthermore, the proposition for NBFCs to partner in priority sector lending opens new avenues for collaborative growth, utilizing the sector’s agility and reach to ensure that financial aid reaches those who need it most, without unnecessary delays. This holistic approach, combining responsible NBFC loan recovery practices with strategic financial partnerships, is poised to strengthen India’s financial architecture and benefit millions.