RBI Imposes Restrictions on Four NBFCs Due to Supervisory Concerns

The Reserve Bank of India (RBI) announced on October 17, 2024, that it has imposed restrictions on four Non-Banking Financial Companies (NBFCs), including Asirvad Micro Finance Ltd, Arohan Financial Services Ltd, DMI Finance, and Navi Finserv. This action is due to significant supervisory concerns raised by the central bank, and it requires these entities to halt the sanctioning and disbursement of loans.

According to the RBI’s notification, the central bank identified issues related to the Pricing Policy of these NBFCs. Specifically, concerns were raised about their Weighted Average Lending Rate (WALR) and the interest spread charged over their cost of funds, which were deemed excessive and non-compliant with existing regulations.

The regulatory body also noted multiple violations by these companies in assessing household income and considering existing or proposed monthly repayment obligations in their microfinance loan offerings. Further deviations were found concerning Income Recognition and Asset Classification (IR&AC) norms, which the RBI indicated have led to the potential evergreening of loans.

Moreover, the central bank reported issues in the conduct of the gold loan portfolio and deficiencies in adhering to mandated disclosure requirements on interest rates and fees. Concerns were also raised regarding the outsourcing of core financial services by these entities.

The imposed business restrictions are set to take effect from the close of business hours on October 21, 2024. However, the RBI clarified that these restrictions do not prevent the companies from servicing their existing customers or carrying out collection and recovery processes, provided these activities align with current regulatory guidelines.

The RBI stated it would review these restrictions once the concerned companies confirm they have taken appropriate remedial actions to comply with regulatory guidelines, particularly in terms of pricing policy, risk management processes, and customer service. “We will assess the situation and adjust restrictions once confident that regulations are being upheld,” an RBI official commented.