The Reserve Bank of India (RBI) has imposed a ban on four non-banking financial companies (NBFCs), including Navi Finserv, founded by Flipkart co-founder Sachin Bansal, from sanctioning and disbursing new loans. The ban, effective from October 21, 2024, also includes Asirvad Micro Finance, Arohan Financial Services, and DMI Finance Private.
RBI’s Statement on Supervisory Concerns
In a detailed statement, the RBI explained that the action was driven by “material supervisory concerns” regarding the Pricing Policy of these NBFCs. The RBI cited violations related to the Weighted Average Lending Rate (WALR) and the Interest Spread charged over their cost of funds, which were found to be excessive and not in compliance with the central bank’s regulations.
Violations of Regulatory Guidelines
The RBI noted that the NBFCs’ practices were not aligned with the Master Directions on Microfinance Loans (2022) and the Non-Banking Financial Company–Scale Based Regulation (2023). The companies were also found to be in breach of the Fair Practices Code, with concerns related to unfair and usurious pricing, especially for small-value loans.
Further violations were observed during onsite examinations and from offsite data analysis. Issues included non-compliance with guidelines on household income assessment, loan repayment obligations, income recognition, and asset classification (IR&AC) norms. The companies were also found to have engaged in loan evergreening, improper conduct in their gold loan portfolio, and failed to meet mandated disclosure requirements on interest rates and fees.
Despite the ban on new loan disbursements, the RBI clarified that the NBFCs can continue servicing their existing customers. This includes ongoing collection and recovery processes, as long as they adhere to current regulatory guidelines.
The RBI emphasized that these restrictions will remain in place until the NBFCs demonstrate suitable remedial actions. The companies will need to provide confirmation of adherence to regulatory guidelines, particularly in terms of their pricing policy, risk management, customer service, and grievance redressal mechanisms. Once these concerns are addressed to the RBI’s satisfaction, the business restrictions may be reviewed.
This action by the RBI highlights its continued efforts to ensure fair lending practices and protect borrowers, especially in the microfinance sector. The central bank has been urging its regulated entities to maintain transparency and fairness in their pricing policies, particularly for vulnerable, small-value borrowers.
