The Reserve Bank of India (RBI) has taken a strong stance against four non-banking financial companies (NBFCs), ordering them to cease and desist from issuing loans due to excessive pricing and regulatory breaches. The order comes as part of the RBI's efforts to curb exploitative practices in the financial sector.
The Companies Involved
The NBFCs impacted by the central bank's directive are:
- Asirvad Micro Finance Ltd.
- Manappuram Finance Ltd.'s MFI arm
- Arohan Financial Services Ltd.
- DMI Finance Private Ltd. (backed by Mitsubishi UFG)
- Navi Finserv Ltd.
These companies are accused of usurious pricing, which refers to charging excessive interest rates on loans. The RBI highlighted concerns with the pricing policies, specifically regarding the weighted average lending rate (WALR) and the interest spread over the companies' cost of funds.
Regulatory Deviations Identified
In addition to the issue of high loan pricing, the RBI found that these NBFCs violated several regulatory guidelines, including:
- Inadequate assessment of household income
- Poor consideration of existing or proposed monthly repayment obligations in microfinance lending
- Conduct deviations such as improper handling of gold loan portfolios
- Lack of proper disclosure on interest rates and fees
- Outsourcing key financial services without following prescribed norms
Implementation and Next Steps
The cease-and-desist order will come into effect on October 21, allowing the companies time to address the identified concerns. While the restrictions are in place, existing customers' services will remain unaffected. The RBI will review the companies' remedial actions, and the imposed restrictions will be lifted only when compliance is satisfactory.
Responses from the Companies
Navi Finserv and Asirvad Microfinance have issued statements expressing their commitment to addressing the RBI's concerns. Asirvad announced that a board meeting has been convened to determine a corrective course of action within a specified timeline.
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