The Reserve Bank of India, on Thursday, barred four non-banking financial companies from sanctioning and disbursing loans from Oct. 21 as it found material supervisory concerns in relation to high lending rates.
The RBI has asked Asirvad Micro Finance, Navi Finserv, Arohan Financial Services, and DMI Finance to 'cease and desist' sanction and disbursal of loans.
The move came as the central bank over the past few months has sensitised lenders on the need to use their regulatory freedom responsibly and ensure fair, reasonable, and transparent pricing, especially for small-value loans.
"However, unfair and usurious practices continued to be seen during the course of onsite examinations as well as from the data collected and analysed offsite," the RBI said in a press release.
RBI took this action after it observed that the weighted average lending rate and the interest spread charged over their cost of funds were excessive and not in adherence with the regulations.
These are also found to be not in conformity with the provisions laid down under the fair practices code issued by the central bank.
In response to this, a Navi Finserv spokesperson said that the company is currently reviewing the circular and is committed to addressing all concerns raised by the regulator promptly and effectively.
"The company remains dedicated to maintaining the highest standards of compliance, transparency, and customer care in its operations," the spokesperson said.
Apart from usurious pricing, these NBFCs were variously found to be in nonadherence with the regulatory guidelines on assessment of household income and consideration of existing or proposed monthly repayment obligations of their microfinance loans, RBI said.
It also observed deviations with income recognition and asset classification norms, resulting in evergreening of loans, conduct of gold loan portfolios, mandated disclosure requirements on interest rates and fees, and outsourcing of core financial services, among others.
While these restrictions will take place at the close of business on October 21, these companies will continue to provide service to their existing customers and carry out collection and recovery processes.
These restrictions have come as the RBI Governor Shaktikanta Das, during the announcement of the monetary policy last week, warned the NBFC sector against imprudent growth, unfair business practices, and usurious interest rates charged by certain outliers.
The RBI is closely monitoring these areas of concern and will not hesitate to take appropriate action if necessary, he said, adding that self-correction by NBFCs would, however, be the desired option.
Last month, the central bank lifted restrictions on IIFL Finance's gold loan business. The banking regulator had imposed curbs on the non-bank lender's gold business on March 4, citing serious operation lapses.
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