Abstract

Publication Note: Originally published on Manupatra.

This paper examines the legal regulation of excessive or usurious interest rates in India's financial sector, with particular focus on commercial banks and Non-Banking Financial Companies (NBFCs). It traces the shift from judicial scrutiny of oppressive lending transactions under the Usurious Loans Act, 1918 to the contemporary framework of market-based interest-rate determination under the regulatory supervision of the Reserve Bank of India. The paper analyses Section 21A of the Banking Regulation Act, 1949 and its effect on judicial intervention in banking transactions, alongside RBI's regulatory requirements concerning transparency, disclosure and fair lending practices. It further examines key judicial decisions including Central Bank of India v. Ravindra, State Bank of India v. Yasangi Venkateswara Rao, Corporation Bank v. D.S. Gowda, Bank of Baroda v. Perchem Industries, Manmeet Singh v. Union of India, and Hongkong and Shanghai Banking Corporation Ltd. v. Awaz. The paper also considers the distinct regulatory position of NBFCs and emerging concerns surrounding digital lending. It argues that contemporary Indian law has moved from a rate-control model towards a transparency-and-regulation model, under which high interest rates are not unlawful merely because they are high, but may attract scrutiny where they are arbitrary, deceptive, inadequately disclosed, or inconsistent with RBI requirements.