Daybreak - At RBI-licensed NBFCs, 600% annual interest is board-approved, ‘reasonable’, and perfectly legal

Episode Date: August 5, 2026

If you Google "paisa de do", dozens of near-identical websites appear. Some, offering cash in 15 minutes. The interest rate on some of these loans is 600% per annum and the lenders are RBI-licensed.One borrower started with a Rs 75,000 loan. Within five months, he was paying Rs 6 lakh a month across eight different loan apps just to stay afloat.The Ken's Mutasim Khan found 25 such NBFCs, some reporting revenue growth of 3,000 times in a single year. In 2024, the RBI flagged 45% annual interest as predatory. These lenders charge more than ten times that. And nobody has stopped them yet.Tune in.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

If you're a salaried employee in India and you need to borrow some money in a pinch, all you need to do is Google Paisa Dedo. Any number of almost identical websites will pop up. Most will have half-recognizable names like Zepto Finance or even Bharat loan. Some may even offer you cash in 15 minutes. And if you're desperate enough, those 15 minutes might be worth the cost of the loan. and the interest you sign up for, even if that interest is at a rate of 600% per annum.

Because that's the rate some of these NBFCs or non-banking financial companies are giving out loans at. And guess what? It's entirely legal and the lenders are licensed by RBI. And the result is an incredibly lucrative revenue source for the NBFCs and a vicious cycle for their borrowers. I spoke to a borrowers also in the story, SR, his initials. He started with the 75K loan and by the end of like five, six months,

he was paying about six lakh rupees a month just to clear these loan payments. He had like eight different loan apps from which he was borrowing. And it becomes a whole debt cycle. You just heard my colleague, the Ken reporter Mutasim Khan. He spent days inside the story speaking to fintech founders, regulators and the victims of these kind of loans to understand what was happening. He found 25 such NBFCs. Some of them had even reported that their revenue grew by 3,000 times from what it was the

year before, from lax to crores in just a year. But the surprising thing that Muthasim found was, in 2024, the RBI had actually issued temporary season desist orders against four large microfinancing companies. The reason? That they were lending at annual interest rates of 45%. Now, most of the NBFCs have been able to charge what they do because the RBI doesn't enforce a cap on interest rates. But if it has considered 45% predatory in the past, then how do these NBFCs with rates

more than 500% get away with it? I am joined by Mudasem in the studio today to explain how the system works and how it has worked as long as it has. Hi, Mudasim. Thanks again for joining us on daybreak today. So honestly, I want to start the story where you started because the way you write it is so interesting and, you know, funny in a dark way

because you describe how buying NBC's online is as easy as shopping for furniture and that it can even be like the ultimate investment. And I'm quoting you here, you say, all someone would need is some money, the right playbook and a questionable conscience. Could you tell us why questionable conscience? Thank you for having me again.

So basically the answer to that question goes to the heart of the story, which is what this class of NBC's is doing. So to begin with, which is the headline of the story also, they're charging interest rates north of 500, 600% annualized. and that should stand out by itself because I'm sure whoever is even like heard of loans even on the surface you know interest rates look like maybe 10% 12%

15% annualized but here you have loans being offered at interest rates of 600% or more in some cases so one loan that I applied got sanctioned at 857 something percent although the caveat is that this does not mean that you take the loans for a year which is where this thing about APR comes in. APR basically stands for annual percentage rate, which is to say, okay, maybe you are taking the loan for 30 days,

but what would the interest have looked like had you taken this same loan or at the same terms for a year? And why that is important is the reason this rule is in place, NBFCs have to disclose APRs beforehand, so that you can compare between different loans, whether those loans have a predatory rate or not. So yeah, that is where it goes, that goes to the central theme of the story. And so basically the beginning of the investigation, I found these bunch of NBFCs.

So for example, there was this one NBFC which went from a 2 lakh revenue to something like an 81 crore revenue in just 12 months. Another NBFC went from 22 lakh to 105 crores in just 12 months, right, which is absurd. You don't see that kind of growth anywhere. Maybe in an open AI or an anthropic, but for like domestic local NBFCs, that's something which, you know, makes you like scratch your head and see what's going on. So yeah, that's that's the questionable part of it. When you say local, how local do you mean? Like, how small are these companies? So for the companies that I was looking at, they're actually pretty small in terms of their loan book size.

So all of these companies. So I have about 25 NFCs in my data set. these companies will basically have loan books of a hundred crore or less. Now that is important for a bunch of reasons. The first one being that the way RBI regulates the NBFCs is they have a tiered system. And this tiered system is contingent on how big your loan book is essentially or how big you are as an NBFC. So these NBFCs sit at the bottom of the regulatory pyramid, which means that the RBI, because it has limited resources, very unlikely that it regulates these bottom levels.

their NBFCs as rigorously as it does, like bigger NBFCs, etc. The second important thing with the smaller loan book is it's kind of misleading and deceptive in the sense that, sure, you might be only lending a hundred rupees. But if you're doing it in short-term loans, let's say you're lending 100 rupees and you're giving 30-day loans, that means you can lend 100 rupees 12 times a year, right? Because every 30 days you're getting that hundred rupees back and then you're lending again. Effectively, you've lent $1,200 in a year. So this small loan book also sort of was sort of contributed to what you see in their

inflated revenue jumps and inflated profit margins. So pretty small, but this is a large sort of consortium of NBFC. So like I started with a couple of examples. And that is where the investigation also began. Started with one NBFC. But then it turned out to be a lot more structural. like a lot more widespread and coordinated than just one bad actor. Okay, so how exactly do they work and how is it possible for them to have such exorbitant interest rates?

And also who are the people borrowing from them? Yes, I think that becomes very important to the story because their business model is inseparable from the way in which their distribution happens. So what these NBFCs do, and at least is what I found, and this is a sort of consistent. trend across these NBFCs, which is that you will have these dormant companies from the 1990s who have not been doing much business lately. And suddenly, around 2024, you see this insane spike in their numbers and then even more in 2025, which is the jump I just described, right? And the way this works is they basically will create a bunch of different websites,

a bunch of very different and catchy names. For example, a Zepto Finance or a Bharat loan or in, you know, F1 speed loan. In fact, the way I went about this is because, I mean, I knew one NBFC is doing it. How do I find, you know, other NBFCs? So I put myself in the place of a borrower who wants to borrow in an emergency, let's say for some medical emergency or maybe your rent payment is due. What would an average follower go and type on Google? I just type that. In fact, something like Paisa Dedo or quick money.

And I found that you had websites with all of these names. names. I mean, I could come up with a random string of words that would sort of point towards, you know, an instant personal loan. And there would be a website with that name. So the way these NFCs would function is they create all these different websites, different themes. My guess is that these were like all of, most these websites are just wipe coded, clodd websites, because you will just, you will just be able to notice that very template websites. And then they run a lot of ad campaigns. So they'll have WhatsApp bots. They'll have Instagram stories. And so we also get to the borrower profile, I think, through this thing.

So, I mean, typically when you read about loan sharks or think about it, I think the image that people conjure up in their head is more along the lines of some rural farmer or a gig worker or someone at the bottom of the economic pyramid. But these are not the people we are talking about in this story. These are specifically a class of people who are salaried. In fact, most of these loans, and they are technically called payday loans, they have a criteria which says that you can only get the loan if your salary is above a certain threshold. So 30,000 rupees or 50,000 rupees.

So this is not, this is people like you and me. And, you know, these are borrowers who, you know, who just need money quickly. And why they won't go to a more established bank or an established NBFC and borrow at lower interest rates is because that process takes time. An established NBFC or a big bank will take time to do due diligence. We'll take time to figure out what your credit profile is, what your rating is, how much they can lend to you, what is your payment capacity? These NBFCs don't care.

They will promise that they'll give you loans in 15 minutes, which also means they don't care about your credit profile. So they can charge an exorbitant amount of interest. And I mean, if you run enough, aggressive enough ad campaigns, reach enough people, you will always find someone who's, you know, in a vulnerable position or in need of money who will end up clicking and, you know, buying your loans despite these terms.

And you don't need that many borrowers if you're charging such a high, interest rate and churning so quickly to become very, to become very profitable. The other part of their business model, which I have not gone so much into the story, is their recovery process, which is the more like bone chilling of everything else. So the way these NBFCs work is they'll hire recovery agencies who will resort to outright like harassment, including, for example, sending emails to your families, sending emails to your employers, harassing you on WhatsApp or in, in, in, in many cases showing up to your doorstep

and knocking aggressively on your door and giving you threats and all of that. In fact, there have been many suicides as a result of the same process. So this is this whole business model and it works in conjunction together to create this kind of like a revenue explosion for these NBFCs.

Right. It's so heartbreaking that people are actually getting pushed into these situations and then the same cycle is resulting in a revenue explosion like you just said for these NBFCs. But, okay, so since we were talking about how aggressively they advertise, you know, to get to these kind of people, there's this line in your story where you say, one small peril of running an aggressive ad campaign is that it makes the journalist's job that much easier. And you did bring this up already.

But you had actually applied for a loan on one of these apps and you ended up being approached by other apps with them using like various methods, right? Yeah, so painful. I still get at least five calls a day. And how many of the numbers I block, I'll just get more calls. And I don't know how this works. But I started by applying to one NBFC and suddenly I have my inbox full of just random NBFCs telling me that my loan has been approved, even though I hadn't applied for it. Right. So this is typical dark patterns, you know, incessant nudging.

And, you know, just like I said, their whole model is like a hit rate model. So, for example, they started bombarding my WhatsApp, my Instagram posts were full. my mom started getting NVFC like personal loan advertisements which I don't know if it's related but seems to me to be but yeah so then it became a lot more easier

then because then I mean the data set that I got is just a completely random data set right these NBFCs just came to me I didn't even go digging so yeah I mean that is what happened in fact in the whole reporting process

I did not know this at the time but my Sibyl score my credit score took a hit because so every time you apply for a loan, the process involves a hard inquiry with Sibyl to know your credit score. Obviously, that's how they judge how much to give you. And every time that inquiry happens, your Sibyl score drops by bit. So my Sible score is now, yeah, it's taken a hit. But I think I was like worth it still. Thank you for your service. So, okay, so what happens to an actual borrower who is borrowing from these NBFCs who can't repay in time? Yeah. So you will have a lot

of a lot of these borrowers who will not be able to repay in time and that actually works out to be a boon in largely a boon for these NBFCs. And the way that works is remember how I talked about them having multiple websites. Yeah. I don't know if I added this, but it's the same NBFC having multiple different websites. So let's say I take a $10,000 loan and by the end of my loan tenure, I have to pay back $20,000. I mean, that's the amount of the interest works out too. And then let's say I'm not able to pay, right? What the NBFC will do is they'll tell me that, okay, it's okay, if you're not able to pay,

we will offer you a top-up loan, which is going to be less than $10,000, because their argument is, if you couldn't pay back $10,000, we can't offer you more than $10,000, right? So for example, they will tell me, okay, we'll give you another $5,000 loan. You use that to clear your previous $10,000 loan, whatever part is left, and then you have a smaller principle to pay back, right? But the catch there is, they will usually direct you to one of these other websites also by the same NBFC. And the second thing is your remaining principal amount, which is the $5,000 that is left to

be paid back. Now that compounds at a penalty interest. So if you were paying 1% interest a day, now you're going to be paying 2% interest today. So even with this top-up loan thing, their thing is just that your loan book keeps growing. And this has disastrous consequences. I mean, I spoke to a borrower also in the story. SR, his initials.

He was, he started with a 75K loan and by the end of like five, six months he was paying about six lakh rupees a month just to clear these loan payments and he had like eight different loan apps from which he was borrowing. And it becomes a whole debt cycle. And from my reporting, I get the sense that this is an orchestrated thing. It's not that people just, you know, are stupid enough to just fall into it. But it is just engineered that way. And that has also been the experience of a lot of borrowers.

that's very scary and this is and this is I mean a good thing to know I mean I've never come across you know sites like this but since it is so pervasive it's good to know okay so one of your sources

who manages a loan management company said that the growth of this segment is at like 200 to 300% which you also kind of mentioned earlier but how does that even begin to happen and why is there no regulation about this and if there is an why is it not working? Right. So the source you're talking about actually runs a company called Freed,

which is a debt management company. And basically their entire business model is less a parallel business model that was born out of loan sharks. So what they help people in doing is if you've taken a loan and you defaulted, they'll help you with the legal assistance, they'll try to negotiate the terms with the NBFCs and all that. So this person, Riteshh Rastav, he has a very, like clear vantage point around what's going on. And he's also been telling me, like independently or whatever we've discussed, he's been seeing like a sharp spike in these kinds of cases coming in

where somebody is borrowed an instant personal loan from a random website and now they're being harassed or, you know, they have to pay back. So the way I think the growth numbers, I mean, if you even look at the growth numbers for individual NBFCs, you see they're high, right? Which means that they're finding a lot of customers. They're churning their own books very quickly and they're making a lot of money out of it and presumably a lot more NBFCs have joined.

So, yeah, not surprising that this, the growth is happening at that rate, given, you know, how lucrative the whole thing looks is why I describe it as an ultimate investment. Around the regulation question, that becomes more interesting actually, because RBI, I think around 2014, they, they distanced themselves from,

the idea of capping interest rates. And the argument was something like, oh, it hurts free market competition. If you're capping interest rates, let's say RBI says, okay, you cap interest rates at 20%. There will be borrowers willing to borrow at 25%. There will be lenders willing to lend at 25%.

But that loan does not get sanctioned because the interest rate is capped. So the RBI's argument is twofold. One is that, okay, you know, you'd let competition, competition free market competition do its strict and that will regulate prices you know if one lender is charging 30% the other lender will say okay let me charge 25 so I have more customers and that will lower down prices somehow and you know it'll read some kind of stability I mean but that is not

what we have seen and fortunately or unfortunately free market competition only looks good in theory in fact in 2024 the RBI actually banned a bunch of microfinance NBFCs who were charging loans at 35, 40%, APRs. And they banned it, which means the RBI does have like a cap on what they consider to be predatory or usurious. Although it's not instantiated in writing, it's more instantiated in the steps they took with banning the NFCs. But imagine that was 40% and they still got banned and these guys are running at 600, 700%, and the reason they don't come into the radar, I mean, multiple threads here also, but one of them is like I said, these are very small, relatively unregulated NBFCs.

And even in the process that the RBI has laid out for complaints, that process is very inefficient. So towards the end of my story, I talk about how this one person who was being harassed into giving back their loans and they had people come up to their house, etc., etc. He writes to the RBI and it's a specific body of the RPI called the consumer protection consumer education and protection sell. And it turned out that the CEPC just forwarded that complaint back to the NBFC. And you know, the RBI has this principle, right, which is no interest rate caps.

And then they have a way to enforce this principle. I mean, you either have to tweak the principle again or have to sort of change the way of enforcing it. But if, you know, both are running in opposite directions and it causes this kind of distortion in the market. It seems kind of an inefficient system for sure. Were you able to get in touch with any of these NBFCs? And what was their explanation for the way they operate? So, no, NBFC agreed to talk to me. I mean, not surprisingly.

But, I mean, it's not hard to find their explanations. Because as per RBI mandates, even though they, you know, they don't have a cap on interstates, they're still supposed to disclose what their interest rates are and how they came to that number. Right. Now, most of, many of them don't disclose it again. This is part of the story. I've done analysis on the data set. But we had this one NBFCs, one NBFC who was, I mean, stupid enough to have an interest rate policy document and actually share the rationale with which they reach the interest rate number, which is 600% annualized.

And their argument was it, okay, we are in NBFC. So the caveat around NBFCs is unlike banks, they cannot accept deposits. The way a bank gives out loan is you, you know, you know. you have a savings account, you put your money in the bank, the bank uses that money to lend it to someone else. NVFCs can't do that. So the way NBC's work is they will borrow some money from preferably a bank somewhere. Let's say they borrow at X percent interest rate.

They will lend it at X plus Y percent interest rate and that Y percent is basically where they're making the profit. So you can borrow at 10 percent, sell at 14 percent. The 4 percent is your margin. This NBC Empire Finance writes in their interest rate policy document that they're borrowing at a 120% interest per annum, which is again extremely absurd. No bank lends at 120% per annum. I think you had a source also who mentioned that it can't possibly be more than 60%.

It's not possibly true. No, not even 60%. He was like 40% even if you had to absolutely stretch it. But 120% just does not make sense. And so there are two explanations. Either they are borrowing from someone who is actually lending them at 120%. percent or they are just straight out like lying about their cost of borrowing. So we don't know which one's true.

I mean, did not have enough publicly available data to make a conclusive claim around it. But the point is that, you know, this is just like, again, absurd. And the fact that this is this is a board approved interstate policy document which is available to everyone. And Empire Finance is just one of them. I actually found a bunch of other NBFCs also who have similar kinds of irrational. Then they will say that they have a 200% profit. margin, like annualized profit margin, which is again, why would you have a 200% profit margin?

So yeah, all in all, their justification does not have any kind of like rational validity in terms of, oh, why are you charging this exorbitant amount? So I did, I tried to play devil's advocate for a long time. In fact, I tried to talk to people and, you know, I literally went and asked them, okay, please tell me, can you imagine any case in which this kind of a cost structure makes sense? And the answer was unanimously that no, this is just like right, straight out predatory. Doesn't make sense at all. So, yeah, we don't really know what's going on there.

Got it. But when you did dig in a little further in this, you found that when they were borrowing to lend, they were not borrowing from banks. They were, in fact, borrowing from companies. So in the data set that I curated, I specifically try to see where they're borrowing from. Now, many of them have very vague disclosures. But from what I could find, it was not banks. it was very little of their borrowing came from banks.

It was like random construction companies. There was a renewables energy company. There are stock brokers. And there are these, you know, infrastructure companies, for example. So these are like mid-sized companies, maybe a 50, 60, 70, grow revenue year. And then my guess is that maybe they have idle cash sitting and they feel like this is like I said in the beginning of that. It's like the ultimate investment. You know, you get a lot of, lot of your returns.

a lot of return on your investment. So from what we have, you know, your guess is that that's what happening, but never know. It can be a lot of other stuff as well. Could you tell us how exactly these predatory NBFCs differ from how actual regulated NBFC works? So the first thing is, obviously, like I said, it's the time to disperse loans. So a credit B, for example, which is offers exactly the same loan product at about

a maximum of 35% APR compared to the 600%. The difference is one, they takes a while to disburse the loan. And the second is they'll have more stringent checks on your credit score and your payment ability. And so maybe they will be willing to disburse a smaller loan than these NBFCs. The third is obviously that they're way more regulated. They are supposed to be because they have such a large customer base. The RBI is looking at them constantly. They have to be way more rigorous with their disclosures and with what they're doing.

So all of these serve as checks and balances. for them to not cross the line into predatory lending. But, yeah, evidently that is not the case with these other NVFCs who sit at the base layer. We know that these exist now. And I think you quote somebody who says something that sounds quite nice where like the nets that RBI and regulators have are big enough to catch the whales, but the small fish kind of slip through. So what would need to change for this to be regulated better or at all, it seems? Yeah, like I said, my, I mean, there are, like I said, there are two things that is the principle behind having no interest rates and then there is how you enforce that without having vulnerable people suffer. You can change either of those things.

I think that it is just not the correct principle to just like, it's just lazy to say that free market will sort of do its work. If that was the case, then you wouldn't have had so much predatory lending for so long. I mean, I. This has been going on for two, three. years now. This has been going on for two, three years, but there have been other cases before. There were some Chinese apps that were doing similar kind of thing back in 2020 or 23 or something. And, you know, like RBI constantly keeps cracking down on these other NBFCs or also lending at predatory rates. I mean, for a free, I mean, I studied economics.

So, I mean, I know the theory. The theory is that, you know, if you have a set of rational consumers, they will always end up going to cheap. price and because they want to go to cheaper price, companies will be incentivized to offer at cheaper rates. But you don't have rational consumers. We have consumers who are very vulnerable. You have no way of knowing what their context in life is. We have no way of knowing what they're going through at that point emotionally, mentally,

materially. And you know, there is this common argument against, oh, why did you then ask for this loan or take this loan? You could clearly see the interest rates. But that's like a lazy, lazy argument. The regulator cannot give this argument. It's like victim blaming essentially, right? It's like you have the burden of not getting trapped.

But then no, I mean, there has to be, I think that there needs to be interstate caps, which anyways exist. When the RBI says they will ban you if you charge 40%. That means RBI is effectively saying there is interest rate caps, right? Yeah. Even though it's not written in writing. Maybe there can be like tiered caps. Okay.

So if you have this borrower profile, this is what you can charge. But maybe for better borrower profiles, you can like go ballistic or whatever. I don't think a no interest rate cap in principle saying that the free market will take care of it works at all. I mean, in fact, I spoke to people from the RBI and to just explain to them how Instagram feeds work and how infinite scrolling works and how that can absolutely coerce you into clicking on something. It was just so hard. So you have like 70 year olds who have no idea how people are interacting with these apps and payday loans who are just like making these regulations and they don't understand very much disconnected from. what goes on in their lives. So yeah, I think

that is where regulation should go if at all. Okay, great. So we are at the end of time. Thank you so much, Mutasim, for this very investigative story

and for your time on daybreak again. Thank you, everybody, for listening. I will be linking Mutasim's story in the show notes below. Please give it a read. And we will see you tomorrow.