RBI Imposes Ban on Loan Sanction and Disbursal by Four NBFCs Over Excessive Interest Rates
The Reserve Bank of India has imposed a ban on four NBFCs, including Navi Finserv and DMI Finance, from sanctioning and disbursing new loans due to concerns over excessive interest rates and regulatory non-compliance. The ban takes effect on October 21, 2024.
RBI Imposes Ban on Loan Sanction and Disbursal by Four NBFCs Over Excessive Interest Rates
In a decisive move, the Reserve Bank of India (RBI) has banned four Non-Banking Financial Companies (NBFCs), including Asirvad Micro Finance Limited, Arohan Financial Services Limited, DMI Finance Private Limited, and Navi Finserv Limited, from sanctioning and disbursing any new loans. The ban, which comes into effect from the close of business on October 21, 2024, was enforced under Section 45L(1)(b) of the Reserve Bank of India Act, 1934, and is aimed at addressing supervisory concerns regarding the pricing policies of these firms.
The RBI’s action stems from issues identified in the companies’ Weighted Average Lending Rate (WALR) and the interest spread charged over their cost of funds. These rates were deemed excessive and not in line with the regulations set forth in the RBI’s Master Direction on Microfinance Loans (2022) and the Scale-Based Regulation Framework for NBFCs (2023). Additionally, the interest rates charged were found to violate the Fair Practices Code mandated by the RBI.
While the directive halts the issuance of new loans, these companies are still allowed to service existing customers and continue their collection and recovery efforts. This move reflects the central bank’s ongoing commitment to maintaining transparency and fairness in the financial sector.
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