The Reserve Bank of India has directed non-bank finance companies (NBFC) to strictly adhere to IT Act on cash disbursements. This means, NBFCs must stick to a cap of Rs 20,000 while disbursing cash loans.
According to a Reuters report, this direction comes 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 Rs 20,000 as loan amount in cash," the letter read.
"Consequently, no NBFC should disburse loan amount in excess of Rs 20,000 in cash," it added.
According to another report by CNBC-TV18, the letter was sent by the RBI to gold loan NBFCs, including Muthoot Finance and Manappuram Finance.
The letter was sent following action taken against 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.
Moneycontrol has not independently verified these reports.
In early March, the RBI had ordered IIFL Finance to stop sanctioning, disbursing and selling gold loans, citing "material supervisory concerns" in its gold loan portfolio.
(With Reuters inputs)
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