RBI restricts four NBFCs from giving loans

Bengaluru: The Reserve Bank of India (RBI) on Thursday issued directions to four non-banking financial companies (NBFCs) to cease and desist from sanction and disbursal of loans. The NBFCs are Asirvad Micro Finance Limited, Arohan Financial Services Limited, DMI Finance Private Limited, and Navi Finserv Limited.

The directions will be effective from close of business of October 21.

This action is based on 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. RBI has found these to be excessive and not in adherence with regulations.

This comes in the midst of RBI’s attempt over the last few months to sensitise its regulated entities on the need for adhering to regulatory framework.

RBI’s release said, “Unfair and usurious practices continued to be seen during the course of onsite examinations as well as from the data collected and analysed offsite.”

The RBI also found these NBFCs not adhering to regulatory guidelines on assessment of household income and consideration of existing or proposed monthly repayment obligations in respect of their microfinance loans.

“Deviations were also observed in respect of income recognition and 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,” added the RBI.

A Navi Finserv spokesperson said, "Navi Finserv Limited is committed to conducting its business operations with the highest standards of compliance, customer service, and transparency. The company is reviewing the directions received from the RBI and will work with them, and address all the concerns raised with promptness and completeness." Navi Finserv was founded by Flipkart co-founder Sachin Bansal.

RBI clarified that these business restrictions do not preclude these companies from servicing their existing customers and carrying out collection and recovery processes in accordance with regulatory guidelines.

These business restrictions will be reviewed after the companies confirm to have taken suitable remedial action to the satisfaction of RBI. This is particularly for their pricing policy, risk management processes, customer service and grievance redressal aspects.