RBI Requires NBFCs to Adopt Board-Approved Policies on Lending to Defaulting Borrowers

The Reserve Bank of India (RBI) has raised concerns with several non-banking finance companies (NBFCs) over lending to borrowers who have defaulted on previous loans but whose accounts are not yet classified as non-performing assets (NPAs). RBI inspectors emphasize the need for NBFCs to have a board-approved policy detailing conditions and safeguards for issuing new loans to such borrowers, aiming to prevent evergreening—a practice where new loans cover existing loan dues, masking asset quality issues. RBI clarifies that lending decisions remain commercial but must be transparently governed by internal policies.