MUMBAI: RBI has ordered four non-banking finance companies to “cease and desist from sanction and disbursal of loans” due to regulatory violations. The NBFCs are Asirvad Micro Finance, Arohan Financial Services, DMI Finance, and Navi Finserv.
RBI’s move come after repeated warnings about excessive pricing and failure to ensure borrowers’ repayment capacity.The pricing policies of the NBFCs – including their weighted average lending rate and interest spreads – were found non-compliant with regulations on microfinance loans and scale-based regulation (2023). DMI Finance had recently raised Rs 2,798 crore from Japan’s MUFG Bank, bringing MUFG’s total investment to Rs 4,712 crore.
“Over the last few months, RBI 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 on-site examinations as well as from the data collected and analysed off-site,” the central bank said in a statement. The interest rate in some of the personal loans would go up to 40% per annum.
Among violations were failure to assess household income properly and non-compliance with Income Recognition and Asset Classification (IR&AC) norms, which led to the evergreening of loans. Other areas of breaches involved gold loan portfolios, disclosure requirements, and outsourcing of financial services.
The companies can complete pending transactions before the loan restrictions take effect on Oct 21. They are still allowed to service existing customers and conduct recoveries according to RBI guidelines. The restrictions will be reviewed once the NBFCs take corrective measures.
Asirvad Micro Finance, based in Chennai, is a subsidiary of Manappuram Finance. Arohan Financial Services, headquartered in Kolkata, is among the largest NBFC MFIs in India. DMI Finance, co-founded by Shivashish Chatterjee and Yuvraj Singh, specialises in personal and MSME loans. Bengaluru-based Navi Finserv, co-founded by Sachin Bansal, offers personal and home loans. The company is a wholly-owned subsidiary of Navi Technologies, which focuses on delivering financial products through technology.