Mumbai: The Reserve Bank appointed survey has suggested that states to register money lenders and cap interest rates charged by them.

To prevent money lenders from charging high rates of interest to poor borrowers the panel suggested that states may allow banks to appoint individuals who will lend funds to borrowers.

Individuals operating on behalf of banks must meet certain requirements and funds given to such people may be treated as priority sector lending, it said.

By allowing local people to act on behalf of banks, the panel expects that increased competition and transparency will bring down interest rates in the near term.

Money lenders charge interest between 12 per cent and 150 per cent making it difficult for poor farmers to repay the debt.

The survey conducted by IIMS Dataworks and Invest India Economic Foundation estimated the share of money lenders in total household debt in the past two years at about 31 per cent.

The panel comprising senior RBI officials and finance secretaries from 14 states conducted survey in 177 districts across 25 states.

The panel has asked states to fix a ceiling on interest rates charged by money lenders benchmarked to a rate which can be changed on a periodic basis.

It has also proposed setting up of dispute settlement mechanisms and penalties on unregistered money lenders.

The panel was set up to recommend a model law for regulating the unorganised money lending sector, find means to reduce the high rates of interest charged by them and seek avenues to help poor borrowers gain access to institutional credit.