The Statement of the Peoples Commission on Public Sector and Public Services has declared that the BULA Bill fails to rein in predatory lending activities.
The summary of the statements is given below:
The Department of Financial Services has released the Banning of Unregulated Lending Activities (BULA) Draft Bill. While the Bill claims to tackle the growing crisis in lending, in reality, it does very little to protect poor and vulnerable borrowers from falling into debt traps.
Across India, there is an epidemic of debt-related suicides, harassment, and fraud. People are being trapped by exorbitant interest rates charged by Non-Banking Financial Companies (NBFCs), Microfinance Institutions (MFIs), gold finance companies, and digital loan apps. These lenders often use illegal recovery methods, breach data privacy, and push borrowers into humiliation and despair.
This crisis has grown because public sector banks (PSBs) are steadily withdrawing from rural areas. Rural bank branches, which once made up nearly 60% of all branches, have now fallen to only 29%. As a result, poor households and farmers are left at the mercy of NBFCs and MFIs. RBI data shows that NBFCs and fintech firms account for more than 80% of small personal loans below ā¹50,000āoften at interest rates of 25% to 200% per annum.
The BULA Bill, however, does not address these exploitative practices. Instead, it focuses only on forcing lenders to register as NBFCs and maintain an online database. But many cases of harassment and even deaths have been linked to authorised NBFCsāmeaning they would fall outside the purview of this Bill. The Bill does not mention capping interest rates, regulating recovery practices, or creating a strong grievance redressal system.
What is worse, while state governments like Tamil Nadu and Karnataka are trying to bring in laws to regulate NBFCs, they face hurdles because of a 2022 Supreme Court order that excludes NBFCs from state moneylending laws. This has left ordinary borrowers unprotected.
āWe believe the Union Government should not usurp the powers of the states on this matter. Instead, a strong model law is needed that addresses exploitative lending, reinstates interest rate caps, and strengthens grievance redressal,ā says the statement.
The PCPS also demands:
-
Draft a Model Law for States based on successful state acts (Andhra Pradesh-Telangana, Assam, Karnataka, Tamil Nadu), and bring NBFCs and MFIs under its purview. Exclude SHG federations, registered societies, and trusts that are working well.
-
Expand public sector bank branches in rural and semi-urban areas with adequate staff and mandate to lend to the poor, as was done earlier under Integrated Rural Development.
-
RBI must fix an interest rate ceiling of 18% simple interest and enforce the Differential Rate of Interest Scheme, which requires banks to lend at 4% interest to weaker sections (1% of total advances).
-
Public Sector Banks should lend directly to SHGs, JLGs, Farmer Producer Companies, and individuals, instead of routing credit through NBFCs and MFIs.
Indiaās poor are already burdened with shrinking incomes and rising debts. It is shameful that while billionaires receive cheap loans and loan write-offs, the poor are pushed into the clutches of loan sharks. The government must act to ensure safe, affordable credit for all.
I had written on the issue on March 25, 2025.
What is surprising is that no state government has made public their views on this crucial issue. The RBI coerced the Assam Govt to exempt NBFCs and MFIs on this issue. This became public when the Finance Minister of Assam publicly criticised RBI for its letter. The Dy CM of Tamil Nadu had to amend the bill presented in the Assembly and announce that RBI had directed the change. (Refer to RR, Aug 8, 2025)
It is high time to question RBI and the Union Government. Resistance is brewing from the grassroots. The country is going to witness the largest uprising of women soon as they are the most affected.
Thomas Franco is the former General Secretary of the All India Bank Officersā Confederation and a Steering Committee Member at the Global Labour University.
Centre for Financial AccountabilityĀ is now on Telegram and WhatsApp. Click here toĀ join our Telegram channelĀ and clickĀ here to join our WhatsApp channeland stay tuned to the latest updates and insights on the economy and finance.
