The National Payments Corporation of India (NPCI) has introduced a flat ₹5 fee for NBFC loan and EMI repayments, replacing the previous 0.4% Merchant Discount Rate. This move removes fee uncertainty and helps NBFCs protect their profit margins, particularly on retail loan collections.
The National Payments Corporation of India (NPCI) has resolved industry confusion regarding payment processing fees for non-banking finance companies (NBFCs). By setting a flat fee of ₹5 for all loan and EMI repayments, the regulator has effectively replaced the earlier 0.4% Merchant Discount Rate (MDR). This move provides much-needed clarity for lenders who were previously managing the ambiguity of whether their collections were subject to percentage-based or flat-fee structures.
For NBFCs, this change is a positive step toward protecting profit margins. The previous 0.4% charge was calculated on the total repayment amount, which includes both principal and interest. For larger loan repayments, this percentage-based fee could be significantly higher than a flat charge, effectively eroding the lender’s net earnings. By shifting to a fixed ₹5 fee, lenders can now secure more predictable annualised yields on their loan books without needing to pass on higher costs to the borrower.
Many NBFCs, including microfinance firms and personal loan providers, rely heavily on automated digital collection methods such as eNACH and UPI mandates. High payment processing costs have traditionally been a hidden operational burden for lenders focusing on high-volume, small-ticket retail loans. While the industry is awaiting the formal updated FAQs from the regulator to implement the changes, the shift to a uniform Merchant Category Code (MCC) 7322 aims to bring consistency across the digital lending ecosystem.
Operational efficiency remains a challenge for the sector. Industry data shows that a significant volume of auto-debit transactions fail due to issues like insufficient funds in customer accounts, which often necessitates manual retries or alternative payment methods. The new fee structure creates a stable cost model for these transactions, helping lenders manage their collection expenses better.
Investors may monitor how this reduction in operational friction reflects in the margins of retail-focused NBFCs. While this regulatory adjustment is not a massive revenue driver, the elimination of percentage-based fees on collections supports overall cost-efficiency in the retail lending business, which is a key factor for long-term profitability.