The Reserve Bank of India said Thursday it has barred four non-banking finance companies (NBFCs) from sanctioning and disbursing loans due to non-compliance with norms.
The four NBFCs are Navi Finserv Ltd, Asirvad Micro Finance Ltd, Arohan Financial Services Ltd, and DMI Finance Pvt Ltd, the RBI said in a release. The ban will be effective from close of business on Oct. 21.
Navi is the NBFC founded by Flipkart co-founder Sachin Bansal after he left the e-commerce firm. Asirvad is a subsidiary of gold loan financier Manappuram Finance. Arohan is part of Aavishkaar Group and counts private equity firms Tano Capital and TR Capital as shareholders. Its other investors include impact investor Maj Invest, Danish development financier IFU and Dutch development bank FMO.
New Delhi-based DMI Finance was founded in 2008 by former Citigroup executives Shivashish Chatterjee and Yuvraj C Singh. Its investors include Japanese banking behemoths Sumitomo Mitsui Trust Bank Ltd and Mitsubishi UFJ Financial Group's MUFG Bank.
In August, the non-bank lender raised about $333 million in equity capital from MUFG Bank. The Japanese firm had also led a $400 million investment round in DMI Finance in April last year.
Meanwhile, the RBI said that the action was taken because the four NBFCs’ pricing policy in terms of their weighted average lending rate (WALR) and the interest spread charged over their cost of funds were found to be excessive and not in adherence with the regulations.
The central bank said that, over the last few months, it has been sensitizing the entities that it regulates on the need to use their regulatory freedom responsibly and ensure fair, reasonable and transparent pricing, especially for small value loans. However, it continues to notice “unfair and usurious practices” during onsite and offsite examinations, it said.
“In addition to usurious pricing, these NBFCs were variously found to be in non-adherence with the regulatory guidelines on assessment of household income and consideration of existing / proposed monthly repayment obligations in respect of their microfinance loans,” the RBI said.
The central bank said it also observed deviations in respect of income recognition and asset classification norms resulting in evergreening of loans, conduct of gold loan portfolio, mandated disclosure requirements on interest rates and fees, and outsourcing of core financial services.
The RBI said the restrictions that it imposed on the four NBFCs do not stop these companies from servicing their existing customers and carrying out collection and recovery processes.
Separately, Navi Finserv said in a statement it was committed to conducting its business “with the highest standards of compliance, customer service, and transparency”. It said that it was reviewing the RBI’s directions and will work to “address all the concerns raised with promptness and completeness”.