RBI orders ‘cease and desist’ on 4 NBFCs for usurious pricing
- The Reserve Bank of India (RBI) on Thursday ordered four non-banking financial corporations (NBFCs) to cease and desist from sanction and disbursal of loans, charging them with usurious pricing and other regulatory deviations.
Highlights:
- The Reserve Bank of India (RBI) has directed four non-banking financial corporations (NBFCs) to stop the sanction and disbursal of loans due to concerns over usurious pricing and other regulatory violations.
NBFCs Affected:
- The following companies have been reprimanded by the RBI:
- Asirvad Micro Finance Ltd. (part of Manappuram Finance Ltd.)
- Arohan Financial Services Ltd.
- DMI Finance Private Ltd. (backed by Mitsubishi UFG)
- Navi Finserv Ltd.
Reasons for Action:
- The RBI's intervention is based on several supervisory concerns, including:
- Usurious Pricing: Issues were identified regarding the companies' weighted average lending rate (WALR) and the interest spread over their cost of funds.
- Regulatory Violations: The NBFCs were found to breach guidelines related to:
- Assessment of household income.
- Evaluation of existing or proposed repayment obligations in microfinance.
- Other Deviations: Concerns included:
- Evergreen loans.
- Management of gold loan portfolios.
- Non-compliance with mandated disclosure requirements on interest rates and fees.
- Outsourcing of core financial services.
Implementation of Restrictions:
- The business restrictions will take effect on October 21.
- Services to existing customers will not be impacted.
- The RBI will review the restrictions once it is satisfied with the remedial actions taken by the affected companies.
Responses from the NBFCs:
- Both Navi Finserv and Asirvad Microfinance have expressed their commitment to addressing the RBI's concerns:
- Asirvad announced an urgent board meeting to monitor corrective actions in a time-bound manner.
- Navi Finserv stated it is reviewing the RBI's directions and is dedicated to high standards of compliance, customer service, and transparency.
Prelims Takeaways:
- Non-banking financial corporations (NBFCs)
- Weighted average lending rate (WALR)