India’s central bank has asked non-bank finance companies (NBFC) to strictly adhere to a cap of 20,000 rupees ($240) in cash loans, according to a letter seen by Reuters and two people aware of the development, in a bid to deter cash transactions.
“Please refer to provisions of Section 269SS of Income Tax Act, 1961, which stipulates that no individual can receive more than 20,000 rupees as loan amount in cash,” the letter showed.
“Consequently, no NBFC should disburse loan amount in excess of 20,000 rupees in cash.”
The letter has been sent in the aftermath of action against non-bank lender IIFL Finance, which was found to be in violation of several rules, including those on disbursal and collection of loans in cash in excess of the statutory limit.
None of the sources wished to be identified because they are not authorised to speak with the media.
The Reserve Bank of India (RBI) did not immediately reply to an email seeking comments.
