Reserve Bank of India bans 4 NBFCs from sanctioning and disbursing loans; know who are violators and what went wrong

The Reserve Bank of India (RBI) took stern action against 4 non-banking finance companies (NBFCs), asking them to ceasing and desisting from sanctioning and disbursing loans, effective from the close of business of October 21, 2024.

In a statement on Thursday, the Central Bank said that the action is based on material supervisory concerns observed in the pricing policy of these companies in terms of their Weighted Average Lending Rate (WALR) and the interest spread charged over their cost of funds, which are found to be excessive and not in adherence with the regulations as laid down in the Master Direction Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022, dated March 14, 2022 (updated as on July 25, 2022), and Master Direction - Reserve Bank of India (Non-Banking Financial Company-Scale Based Regulation) Directions, 2023, dated October 19, 2023 (updated as on March 21, 2024).

These are also found to be not in conformity with the provisions laid down under Fair Practices Code issued by the Reserve Bank of India.

RBI has taken action against these NBFCs

1. Asirvad Micro Finance Limited MFI
2. Arohan Financial Services Limited MFI
3. DMI Finance Private Limited ICC
4. Navi Finserv Limited ICC

Over the last few months, the Reserve Bank has been sensitising its regulated entities through various channels on the need to use their regulatory freedom responsibly and ensure fair, reasonable, and transparent pricing, especially for small value loans.

However, unfair and usurious practices continued to be seen during the course of onsite examinations as well as from the data collected and analysed offsite, says the Central Bank.

In addition to usurious pricing, these NBFCs were variously found to be in non-adherence with the regulatory guidelines on assessment of household income and consideration of existing/proposed monthly repayment obligations in respect of their microfinance loans. 

The Bank further says that deviations were also observed in respect of Income Recognition & Asset Classification (IR&AC) norms, resulting in evergreening of loans, conduct of gold loan portfolio, mandated disclosure requirements on interest rates and fees, outsourcing of core financial services, etc.

"These business restrictions have been made effective from the close of business on October 21, 2024, to facilitate closure of transactions in the pipeline, if any. These business restrictions do not preclude these companies from servicing their existing customers and carrying out collection and recovery processes in accordance with the extant regulatory guidelines," RBI says in the statement.

These business restrictions will be reviewed upon receipt of confirmation from the companies regarding suitable remedial action having been taken to adhere to the regulatory guidelines at all times, more particularly their pricing policy, risk management processes, customer service and grievance redressal aspects, to the satisfaction of the Reserve Bank, the press statement reads.