The Reserve Bank of India (RBI) has taken stringent action against four Non-Banking Financial Companies (NBFCs), including NBFC-MFIs, for non-compliance with regulatory guidelines. The RBI, in exercise of its powers under Section 45L(1)(b) of the Reserve Bank of India Act, 1934, issued directions to these NBFCs to cease and desist from sanctioning and disbursing loans, effective from the close of business on October 21, 2024.
The affected NBFCs include:
- Asirvad Micro Finance Limited – MFI (Chennai)
- Arohan Financial Services Limited – MFI (Kolkata)
- DMI Finance Private Limited – ICC (New Delhi)
- Navi Finserv Limited – ICC (Bengaluru)
This action stems from significant supervisory concerns observed in the companies’ Pricing Policies, particularly regarding their Weighted Average Lending Rate (WALR) and interest spreads over the cost of funds, which were deemed excessive and in violation of the RBI’s regulatory framework.
Additionally, these NBFCs were found to be non-compliant with guidelines on:
- Income Recognition & Asset Classification (IR&AC) norms
- Assessment of household income for microfinance loans
- Disclosure requirements on interest rates and fees
- Outsourcing of core financial services
The restrictions do not prevent these companies from servicing their existing customers and carrying out collection and recovery processes. However, the business restrictions will remain in effect until the RBI is satisfied with the remedial actions taken by the companies.
This move underscores the RBI’s commitment to ensuring fair and transparent practices within the financial sector, especially for small value loans.
