Karnataka Chief Minister Siddaramaiah has announced that the state government will introduce a new law to safeguard borrowers from unregulated lending practices. This decision follows a high-level meeting with officials from microfinance companies and the Reserve Bank of India (RBI), with key ministers like HK Patil, DK Shivakumar, Dr. G Parameshwara, and Krishna Byre Gowda in attendance.
The Chief Minister stated that the new law would ensure that borrowers’ interests are protected, especially those affected by the practices of microfinance institutions and other lenders. He noted that the government would study the law enacted by Andhra Pradesh to regulate such companies and other lenders.
Siddaramaiah highlighted concerns over the high-interest rates charged by some microfinance companies, which range from 20% to 28%, even though the RBI allows rates up to 17.07%. He also pointed out that while the regulation mandates that only three loans be given to a family, companies often violate this rule by issuing four to five loans.
The CM made it clear that money lenders would require a license to operate and that complaints about unregulated lending could be filed through helplines set up at deputy commissioners’ offices. Additionally, existing money lending laws will be amended to address these issues, and consultations with the microfinance companies’ association and RBI officials will be held.
Siddaramaiah also emphasized that lenders must follow RBI guidelines for loan recovery, stating that no loan recovery should take place after 5 pm. The government will take strict action against those using illegal methods for loan recovery, including involving goons or rowdies. Police will be instructed to file FIRs and take suo motu action in such cases.
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