The Reserve Bank on Thursday ordered Sachin Bansal's Navi Finserv and three other NBFCs to cease and desist from sanction and disbursal of loans effective from the close of business of October 21, on material supervisory concerns, including usurious pricing.

In a statement, the central bank said the directions have been conveyed on Thursday to the NBFCs -- Bengaluru-based Navi Finserv Limited, New Delhi-based DMI Finance Private Limited, Kolkata-based Arohan Financial Services Limited, and Chennai-based Asirvad Micro Finance Limited -- through the Reserve Bank's detailed supervisory orders.

"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...," the RBI statement on action against NBFCs and MFIs.

The entities are also found to be not in conformity with the provisions laid down under the Fair Practices Code issued by the Reserve Bank, it added.

A Navi Finserv spokesperson said: "Navi Finserv Limited is committed to conducting its business operations with the highest standards of compliance, customer service, and transparency. The company is reviewing the directions received from the Hon'ble Reserve Bank of India and will work with them, and address all the concerns raised with promptness and completeness." Arohan Financial Services did not offer comments while Asirvad Micro Finance Limited and DMI Finance Private Limited were not immediately available for comments.

Over the last few months, the Reserve Bank of India said it has been sensitising its regulated entities through various channels 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," it said.

In addition to "usurious pricing", these entities 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.

"Deviations were also observed in respect of Income Recognition & Asset Classification (IR&AC) norms resulting in evergreening of loans, conduct of gold loan portfolio, mandated disclosure requirements on interest rates and fees, outsourcing of core financial services, etc," it said.

The business restrictions have been made effective from the close of business on October 21, 2024, to facilitate closure of transactions in the pipeline, if any.

The business restrictions do not preclude these companies from servicing their existing customers and carrying out collection and recovery processes in accordance with the extant regulatory guidelines.

The central bank also said the restrictions will be reviewed upon receipt of confirmation from the companies regarding suitable remedial action having been taken to adhere to the regulatory guidelines at all times, more particularly their pricing policy, risk management processes, customer service and grievance redressal aspects, to the satisfaction of the Reserve Bank.

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