Can a Base-Layer NBFC Charge 8% to One Borrower and 30% to Another? Understanding RBI’s Expectations on Interest Rate Practices

One of the most common questions raised by founders, CFOs, legal teams, and compliance officers in Base-Layer NBFCs (NBFC-BL) is: “Can we lend to the same category of borrowers at rates as low as 8% and as high as 30%?”

The short answer is: Yes — RBI permits flexibility, but not arbitrariness.

NBFCs can vary pricing significantly provided the variation is justified through a transparent, risk-based framework approved by the Board.

This article explains what RBI expects, how interest rates should be determined, and what practices can expose an NBFC to supervisory concerns.

RBI’s Core Requirements for Base-Layer NBFCs

Under the Reserve Bank of India (Non-Banking Financial Companies – Responsible Business Conduct) Directions, 2025, NBFCs must maintain:

1. A Board-Approved Interest Rate Policy:

This policy must define:

• Internal methodology for setting interest rates;

• Risk-based pricing parameters;

• Rationale for deviations;

• Minimum and maximum rate bands;

• Documentation and approval requirements.

2. Transparent Disclosures:

NBFCs must disclose clearly:

• Interest rate ranges;

• Annualised effective rate (APR);

• All fees and charges;

• Penal charges as per Fair Lending Practices.

3. Fair, Just and Non-Discriminatory Pricing:

RBI expects NBFCs to avoid:

• Excessive or usurious interest rates;

• Opaque or misleading pricing;

• Borrower discrimination without a risk-based explanation.

How a Compliant NBFC Determines Interest Rates (Illustrative Framework):

A well-designed pricing mechanism has two components:

1. NBFC-Level Pricing Components:

The NBFC should lay down clear criteria for determining interest rates, based on:

• Weighted Average Cost of Borrowing;

• Administrative and Establishment Cost;

• Cost of Risk;

• Cost of Capital;

• Profit Margin.

These factors ensure sustainability, risk coverage, and business viability.

2. Borrower-Level and Product-Level Parameters:

The sanctioning of a loan — and the final interest rate — may be assessed case-by-case, based on parameters such as:

• The asset being financed;

• Customer profile and repayment capacity;

• Income stability and existing obligations;

• Past repayment track record (if available);

• Security or collateral offered;

• Loan-to-value (LTV) ratio;

• Loan tenure;

• Mode of payment (digital/NACH/cheque);

• Geography (customer location, collection feasibility).

Accordingly, the same loan product can have different interest rates for different borrowers.

The NBFC can price loans within a Board-approved range, depending on risk, internal criteria, and documented methodology. Further, management-approved promotional rates may also be offered occasionally. These are temporary and subject to change based on business strategy and market conditions.

What Would RBI Consider Arbitrary or Unfair?

Interest rate variation becomes non-compliant if:

• Two similar-risk borrowers receive widely different rates;

• There is no documented rationale for the pricing difference;

• Staff exercise unregulated discretion;

• The pricing model is not followed consistently;

• Borrowers are differentiated based on subjective or non-financial factors.

Such issues can attract:

• Adverse comments in RBI inspection;

• Supervisory directions;

• Consumer complaints under the Ombudsman framework;

• Governance and reputational risk.

Practical Rule of Thumb to be Followed by NBFCs:

To stay compliant:

✔ Similar risk → Similar rates;
✔ Higher risk → Higher rates (supported by the pricing model);
✔ Every deviation → Documented with justification;
✔ Interest Rate Policy → Reviewed annually;
✔ Internal audit → Validates consistency and flags exceptions.

The Critical Role of the Legal Counsels in Interest Rate Governance:

While credit, risk, and business teams drive pricing decisions, the legal counsels plays a foundational governance role in ensuring that interest rate practices are compliant, defensible, and audit-ready.

1. Ensuring Policy Alignment with RBI Directions:

Legal counsels ensure that the NBFC's Interest Rate Policy, Fair Practices Code (FPC), loan agreements, and disclosures:

• Reflect the latest RBI Directions;

• Include mandatory disclosures (APR, charges, penal charges);

• Clearly articulate pricing bands and deviation rules;

• Avoid ambiguous or unfair contract terms.

2. Reviewing the Pricing Framework and Methodology:

Legal counsels verify that:

• Pricing parameters are objective and non-discriminatory;

• Similar borrowers are treated consistently;

• Deviations are recorded with justification;

• Delegation of authority is defined and followed.

3. Supporting Supervisory and Inspection Preparedness:

Legal counsels play a key role during:

• RBI inspections;

• Internal audit reviews;

• Responses to regulator queries;

• Grievance redressal escalations related to interest rates.

4. Mitigating Litigation and Ombudsman Risk:

Legal counsels ensure that:

• Sanction letters and loan documents are clear and watertight;

• APR and charges are disclosed unambiguously;

• Borrowers cannot allege unfair lending practices;

• Special promotional rates have proper approval trails.

5. Strengthening Corporate Governance:

Legal counsels supports the Board and its committees by:

• Tracking regulatory updates;

• Highlighting compliance gaps;

• Reviewing audit findings;

• Recommending corrective and governance-enhancing measures.

The legal counsel acts as the compliance conscience of the NBFC, ensuring that risk-based pricing remains aligned with RBI’s expectations.

Conclusion:

A Base-Layer NBFC can charge 8% to one borrower and 30% to another —  but only if you can justify the difference using objective, measurable criteria.

Differential pricing is permitted so long as:

• It aligns with documented risk parameters;

• It falls within your Board-approved interest rate band;

• It can be defended if examined in a supervisory review.

Differential pricing is acceptable. Arbitrary pricing is not.

Disclaimer: This article is intended for general informational purposes and is not legal advice. The applicability of RBI directions may vary depending on:

• Size and classification of the NBFC;

• Nature of lending (secured, unsecured, MSME, consumer);

• Internal credit and pricing policies;

• Supervisory category under the SBR Framework.

Readers should refer to relevant RBI Master Directions and consult qualified advisors before implementing or modifying internal policies.