Compliance

The Tamil Nadu money lending licence: what the Act requires, and where the interest ceiling actually lives

CS Manoj Famra · 2026-10-09 · 10 min read (estimated)

A money lender in Tamil Nadu has real compliance. It is simply state compliance rather than the Reserve Bank's — a licence, prescribed records, receipts, a statement of account on demand, and returns to an Inspector. None of it comes from an RBI direction and all of it is enforceable.

This page is read from the Tamil Nadu Money-Lenders Act, 1957 (Tamil Nadu Act XXVI of 1957) itself, and quotes it. Read the caution on currency at the end before you rely on a figure — it matters more here than it does for an RBI direction.

Who needs a licence, and how many

Section 3(1). No person shall, on and after the date the Act is brought into force in an area, "carry on, or continue to carry on, business as a money-lender at any place in such area, except under and in accordance with the terms of licence."

One licence per place of business — section 3(2). "Where a money-lender has more than one shop or place of business, whether in the same town or village or in different towns or villages he shall obtain a separate licence in respect of each such shop or place of business."

This is the provision most often missed by a lender who opens a second counter. It is not a branch endorsement on one licence; it is a separate licence.

Section 3(3) sets who holds it, by the form the business takes:

a registered firm — the licence is in the firm's name;
an undivided Hindu family — in the name of the manager, karnavan or yajaman, described as such

in the licence;

any other association of individuals not required to be registered under the Companies Act —

"a separate licence shall be obtained by each such individual in his name describing himself as a member of the association."

And a change of premises is not automatic. Section 5: no money-lender shall change his place of business "without previous notice to the licensing authority and without having the address of the new place of business duly endorsed on his licence."

Section 6 requires the name to be kept exhibited over the shop.

The interest ceiling is not in the Act

This is the single most-misreported thing about money lending in Tamil Nadu, and it is worth being precise.

Section 7(1), as substituted by section 4 of the Tamil Nadu Money-lenders (Amendment) Act, 1979 (Tamil Nadu Act 41 of 1979):

*"No money lender shall charge interest on any loan at a rate exceeding such rate as the

Government may, by notification, fix from time to time. Provided that the rate of interest as may

be fixed by the Government shall be correlated to the current bank rates of lending as may be

fixed by the Reserve Bank of India, from time to time."*

So the ceiling is a government notification, correlated to RBI's bank rates — not a number in the statute. Any guide that quotes you a percentage "under the Tamil Nadu Money-Lenders Act" is either quoting a notification without saying so, or quoting the pre-1979 position.

What to do with that, practically: the rate you may charge is whatever the current notification fixes, and it moves. A lender who set a rate once against a figure found online is exposed to every revision since.

Charges are separate and also prescribed. Section 7(2): "A money-lender may demand and take from the debtor such charges and in such cases, as may be prescribed." And section 7(3) closes it: "A money-lender shall not demand or take from the debtor any interest, profit or other sum whatsoever in excess of that payable under sub-section (1)."

The records, which are the real daily obligation

Section 9(1) is the heart of the Act for anybody actually running a book. Every money-lender shall:

(a) Keep an account per debtor, showing for each debtor separately:

*"the date of the loan, the amount of the principal of the loan, the rate of interest charged on

the loan and the nature of security taken, if any"*; and

*"the amount of every payment received by the money-lender in respect of the loan, and the date of

such payment."*

Note what that is: a per-debtor ledger, not a cash book. Four fields at origination and two per receipt.

(b) Give a receipt for every payment — "a receipt for every amount paid by him, duly signed and if necessary, stamped at the time of such payment." At the time of payment, signed. Not a monthly statement in place of receipts.

(c) Furnish a statement of account on written requisition. On the debtor's written requisition, to the debtor or to a person named in it, signed, showing the particulars in clause (a) and the amount outstanding on account of principal and interest — for a fee the Government may prescribe.

With one escape: "no such statement shall be required to be furnished to a debtor if he is supplied by the money-lender with a pass-book in the prescribed form containing an up-to-date account of the money-lender's transactions with the debtor."

A pass-book in the prescribed form replaces the statement-on-demand obligation. That is a practical reason to issue pass-books rather than a courtesy.

(d) Submit returns to the Inspector — "submit such returns relating to the loans advanced by him to the Inspector concerned, in such form and at such times as may be prescribed."

And section 9(2): "All records or entries made in the books, accounts and documents referred to in sub-section (1) shall be in such language as may be prescribed in respect of any area."

That last one is easy to overlook and is a records-design decision, not a formatting preference.

Where the forms live. The Act says "prescribed" throughout — the forms, the pass-book, the returns and their timing are in the Tamil Nadu Money-Lenders Rules, 1959, not in the Act. A compliance plan built from the Act alone will be missing every form it needs.

What happens when it goes wrong

Section 17 — carrying on without a licence: "Whoever carries on the business of money-lending without a licence or otherwise than in conformity with the terms and conditions of a licence shall be punished with fine which may extend to one thousand rupees", with a proviso protecting somebody who has ceased lending and is only recovering existing loans.

A fine capped at one thousand rupees is what the text I read says, and it is worth pausing on rather than repeating cheerfully: a 1957 ceiling that has not kept pace is exactly the kind of figure a later amendment revises. Treat it as the position in the text I could verify, not as today's exposure. See the caution below.

Section 14 empowers the licensing authority to cancel or suspend a licence, and sub-section (2-A) allows suspension pending cancellation, for reasons recorded in writing, with no show cause notice. An appeal lies to the prescribed authority within one month (section 14(3)).

Section 15 requires every cancellation or suspension to be notified in the District Gazette and on the notice board of the licensing authority's office. Section 16: no compensation beyond a refund of the licence fee.

The reputational mechanism there is worth noticing. The penalty in section 17 is small; publication in the District Gazette is not.

Kerala is next door and the exposure is not the same

Worth knowing before you carry a Tamil Nadu assessment across the border. Under the Kerala Money-Lenders Act, 1958, lending without a licence — or in violation of a licence condition — carries imprisonment of not less than three months, extending to three years, with a fine up to fifty thousand rupees (s.17). The Tamil Nadu equivalent, quoted above, is a fine of up to one thousand rupees.

Kerala also writes its rate ceiling as a formula in the Act (two per cent above the maximum rate charged by commercial banks), charges a five thousand rupee licence fee, permits trading while a licence application is pending, contemplates deposits subject to the RBI Act, 1934, and requires an account per debt rather than per debtor.

The full comparison is in the Kerala page. And West Bengal is a third shape again: the criminal penalty there is a ₹200 fine, but an unlicensed lender cannot obtain a decree at all (s.13), which makes the book unrecoverable rather than the lender fineable.

The point for anyone operating across them: these are three regimes, not one subject with local variations.

Why this is not the same question as RBI registration

A money lender licensed under a state Act is not an NBFC and is not supervised by the Reserve Bank. There are no DNBS returns, no asset classification direction, no Scale Based Regulation layer. Equally, nothing about holding a state licence exempts a company from the RBI Act's registration requirement if it crosses the principal business test — the two regimes answer different questions and a lender can be caught by both.

If what you are actually forming is an NBFC, that is a different path: NBFC registration and the Certificate of Registration.

A caution on currency, which is not boilerplate here

The text above was read from a published copy of the Act carrying amendments up to the early 1980s — section 7(1) as substituted in 1979, and amendment references as late as 1982.

Three things therefore need checking against the current official text before you act on them:

Any later amendment to the sections quoted. State Acts are amended by state legislation that

is less visible online than an RBI circular.

The current notification fixing the maximum rate under section 7(1). It is not in the Act and

it changes.

The Tamil Nadu Money-Lenders Rules, 1959

for the prescribed forms, the pass-book, the return format and its timing, and the prescribed language for an area.

Written 9 October 2026. Where this page quotes, it quotes the Act. Where the Act says "prescribed", this page says so rather than filling in a figure — because the figure is in a rule or a notification, and quoting one without its date is how the guides this is meant to improve on went wrong.

Frequently asked questions

Does a money lender in Tamil Nadu need one licence or one per branch?

One per place of business. Section 3(2) is explicit: a money-lender with more than one shop or place of business, in the same town or in different towns, must obtain a separate licence for each.

What is the maximum interest rate under the Tamil Nadu Money-Lenders Act?

The Act does not state one. Section 7(1), as substituted in 1979, says the Government fixes the maximum rate by notification from time to time, correlated to the Reserve Bank's bank rates. A percentage quoted as being "under the Act" is either a notification quoted without its date or the pre-1979 position.

What records must a Tamil Nadu money lender keep?

Under section 9(1): an account for each debtor separately, showing the date and principal of the loan, the rate of interest and the nature of any security, plus every payment and its date; a signed receipt for every payment at the time it is made; a statement of account on the debtor's written requisition, unless a pass-book in the prescribed form is supplied; and returns to the Inspector in the prescribed form and at prescribed times. The entries must be in the prescribed language for the area.

Is a money lender regulated by the Reserve Bank of India?

No. A state money lending licence is state regulation. There are no RBI returns and no asset classification direction attached to it. That is separate from the question of whether a company is carrying on business as a non-banking financial institution, which has its own test.

Does a pass-book remove any obligation?

Yes, one. Under the proviso to section 9(1)(c), a debtor supplied with a pass-book in the prescribed form containing an up-to-date account need not be furnished with a statement of account on requisition.

Run your lending on Lenviq

Seeing it run on your own book is faster than reading about it — a demo works through your products, your schemes and your classification rules, not a generic tour.

Lenviq is loan origination, servicing and accounting for NBFCs, built by FastLegal Technologies.

Book a demo What the platform covers

Or just ask+91 96641 46595 WhatsApp hello@lenviq.in What it implements, and the direction each one comes from