RBI bars four NBFCs from loan sanction and disbursal due to regulatory concerns

RBI suspends 4 NBFCs, Asirvad Micro Finance, Arohan, Navi Finserv, DMI Finance, from granting loans

The Reserve Bank of India (RBI) has imposed restrictions on four non-banking financial companies (NBFCs)—Asirvad Micro Finance Ltd, Arohan Financial Services Ltd, DMI Finance, and Navi Finserv—prohibiting them from sanctioning and disbursing loans effective from October 21. This action comes in response to “material supervisory concerns” related to their pricing policies and adherence to regulatory guidelines.

The RBI found that these NBFCs had excessively high weighted average lending rates (WALR) and interest spreads over their cost of funds, violating the regulations set forth by the central bank. Additionally, the companies failed to comply with the Fair Practices Code, particularly regarding the assessment of household income and repayment obligations for microfinance loans.

Other deviations noted included issues with Income Recognition and Asset Classification (IR&AC) norms, which led to the “evergreening” of loans, and concerns regarding the conduct of their gold loan portfolios. The RBI also highlighted failures in mandated disclosures on interest rates and fees, as well as outsourcing of core financial services.

The restrictions will remain in place until the RBI receives confirmation that the affected companies have taken appropriate remedial actions to address the highlighted issues. However, these limitations do not prevent the NBFCs from servicing existing customers or carrying out collection and recovery processes, provided they adhere to regulatory guidelines. The RBI indicated that it would review these restrictions based on the remedial actions taken by the companies.

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