The Karnataka government has directed district administrations to file criminal complaints against microfinance companies accused of harassing borrowers over loan repayments. The decision was announced on Monday, January 28, following a meeting chaired by Chief Minister Siddaramaiah to address complaints from various parts of the state.
Revenue Minister Krishna Byre Gowda directed district Deputy Commissioners to file criminal cases against microfinance companies found violating Reserve Bank of India (RBI) norms during loan recovery. Speaking at a meeting with Deputy Commissioners in Bengaluru, Krishna Byre Gowda instructed district authorities and Superintendents of Police to convene meetings with representatives of microfinance companies within a week. During these meetings, officials have been asked to issue stern warnings that any violations of RBI regulations in loan recovery practices will result in legal action.
He said that microfinance firms in Karnataka have disbursed loans amounting to Rs 59,000 crore. Several companies have reportedly violated RBI guidelines in their pursuit of business expansion. “Loans have been granted without assessing the financial capacity of borrowers, leading to distress and untoward incidents,” Gowda said.
As per RBI norms, microfinance firms are permitted to extend loans up to Rs 2 lakh. Gowda pointed out that several companies have exceeded this limit, offering loans as high as Rs 5–6 lakh. “Such practices have pushed economically vulnerable people into debt traps. All microfinance companies must adhere to RBI guidelines while sanctioning and recovering loans,” he said.
The government has also proposed introducing legislation to curb harassment by microfinance companies. While existing laws do not empower deputy commissioners to take direct action against these firms, the state plans to leverage its legal resources to address the issue, Gowda said.