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Informist, Thursday, Oct. 17, 2024

MUMBAI – The Reserve Bank of India Thursday issued directions to four non-banking finance companies--Asirvad Micro Finance Ltd., Arohan Financial Services Ltd., DMI Finance Pvt. Ltd., and Navi Finserv Ltd.--to cease and desist from sanctioning and disbursing loans, effective from close of business of Monday. 

The RBI said this action is based on material supervisory concerns observed in the pricing policy of these companies in terms of their weighted average lending rate and the interest spread charged over their cost of funds, which are found to be excessive and not in adherence with the regulations.

Over the last few months, RBI officials have been sensitising 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 offsite, the RBI said.   

The action from the central bank comes after Governor Shaktikanta Das had said on Oct. 9 that a few "outliers" in the non-banking space were chasing "excessive returns on their equity". "While such pursuits are in the domain of the boards and managements of NBFCs (non-banking finance companies), concerns arise when the interest rates charged by them become usurious and get combined with unreasonably high processing fees and frivolous penalties," Das had warned.
 

"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 RBI said in the release. "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."

The RBI said these business restrictions have been made effective from the close of business on Monday to facilitate closure of transactions in the pipeline, if any. However, 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.

The RBI further said 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 central bank.  End

Reported by Richard Fargose

Edited by Tanima Banerjee

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