Microfinance Lenders Slash Rates as RBI Cracks Down on ‘Usurious’ Pricing

Several Indian non-bank financial companies and small finance banks reduced their microfinance lending rates in recent months, following repeated warnings from the Reserve Bank of India about “usurious” pricing in small-ticket loans.

RBL Bank implemented risk-based pricing and lowered its maximum rate from 25% to 24%, while Spandana Sphoorty introduced risk-based pricing after previously charging a flat 25%.

Arohan Financial Services made the most significant reduction, cutting rates by up to 225 basis points from its previous range of 24.50-27%, while Suryoday Small Finance Bank reduced its maximum rate by 150 basis points to 26.50%.

The rate adjustments come as the RBI took action against four NBFCs — Navi, DMI Finance, Asirvad Microfinance and Arohan Finance — restricting their loan disbursements from October 22 due to excessive interest rates and non-compliance with household income assessment guidelines.

Despite recent reductions, several small finance banks continue to maintain higher rates than NBFC-MFIs, with institutions like Utkarsh, AU Small Finance Bank, and Jana SFB charging between 25-26%. CreditAccess Grameen and Fusion Microfinance maintain the lowest rates in the sector, with ranges of 18-23% and 19-23.80% respectively, while traditional banks like Bandhan Bank offer competitive rates at 22.95%.