In a letter, the Reserve Bank of India (RBI) allegedly requested that non-finance banking firms (NBFCs) adhere to its cash loan payment ceiling guideline.

According to Reuters, the RBI has instructed NBFCs to closely stick to the Rs 20,000 cash lending restriction in a letter seen by the news agency and two individuals familiar with the matter. This change comes as the central bank seeks to discourage cash transactions.

"Please refer to provisions of Section 269SS of Income Tax Act, 1961, which stipulates that no individual can receive more than 20,000 rupees as loan amount in cash," said the letter.

According to the RBI letter to NBFCs, "Consequently, no NBFC should disburse loan amount in excess of 20,000 rupees in cash."

This action comes after the central bank ordered IIFL Finance to immediately suspend its gold lending operations for new customers due to significant errors in loan management. IIFL Finance's gold lending activities account for one-third of its business. The RBI identified failures such as inadequate checks on gold purity and weight, violations of statutory restrictions on cash loans, departures from regular auction processes, and a lack of transparency in customer account costs.

The RBI's moves against NBFCs coincide with an increase in retail loans following the COVID-19 outbreak, prompting the regulator to take preventive measures.