RBI takes strict action against four NBFCs

The RBI has taken significant action against four NBFCs under Section 45L(1)(b) of the Reserve Bank of India Act, 1934. Directions have been issued to Asirvad Micro Finance Limited, Arohan Financial Services Limited, DMI Finance Private Limited, and Navi Finserv Limited to halt loan sanction and disbursement activities starting from the close of business on October 21, 2024.

The central bank has identified concerns regarding the Pricing Policy of these companies, specifically in relation to their Weighted Average Lending Rate (WALR) and the Interest Spread above their cost of funds. The rates charged by these NBFCs have been deemed excessive and not in compliance with regulatory guidelines.

According to the RBI, in addition to charging excessively high prices, these NBFCs were found to be not following regulatory guidelines on evaluating household income and factoring in current or future monthly repayment responsibilities for their microfinance loans.

This action is based on material supervisory concerns observed in the Pricing Policy of these companies in terms of their Weighted Average Lending Rate (WALR) and the Interest Spread charged over their cost of funds, which are found to be excessive and not in adherence with the regulations as laid down in the Master Direction – Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022 (updated as on July 25, 2022) and Master Direction – Reserve Bank of India (Non-Banking Financial Company–Scale Based Regulation) Directions, 2023, dated October 19, 2023 (updated as on March 21, 2024). These are also found to be not in conformity with the provisions laid down under the Fair Practices Code issued by the Reserve Bank."

The RBI will re-evaluate the restrictions once companies confirm that appropriate measures have been implemented to comply with regulatory guidelines, particularly in the areas of pricing policy, risk management, customer service, and grievance resolution.