RBI bans DMI Finance, Navi Finserv among 4 NBFCs from lending over regulatory violations
The RBI found that these companies were charging excessive interest rates and failing to adhere to regulatory guidelines, leading to restrictions on loan disbursals starting from October 21, 2024.
Reserve Bank of India (RBI) has issued a cease and desist order to several NBFCs, including and Navi Finserv, due to supervisory concerns related to their pricing policies.
Kolkata-based Arohan Financial Services Limited and Chennai-based Asirvad Micro Finance Limited have also been asked to stop lending.
The RBI found that these companies were charging excessive interest rates and failed to adhere to regulatory guidelines, leading to restrictions on loan disbursals starting from October 21, 2024.
These companies also breached the Fair Practices Code, with further violations in household income assessment, loan repayment capacity, and asset classification. These were highlighted through both onsite inspections and offsite data analysis, the RBI said in a circular.
"Navi Finserv is currently reviewing the circular received from the RBI and is committed to addressing all concerns raised by the regulator promptly and effectively, prioritising what’s right for our customers. The company remains dedicated to maintaining the highest standards of compliance, transparency, and customer care in its operations," a Navi Finserv spokesperson said.
The RBI is attempting to educate its regulated entities about the responsible use of their regulatory freedoms, including maintaining fair and reasonable pricing.
DMI Finance had recently acquired the troubled buy now pay later startup and has been under scrutiny for its pricing practices. Navi Finserv, on the other hand, recently completed a $24.5-million personal loan securitisation transaction with Goldman Sachs (India) Finance.
Last week, during the Monetary Policy Committee (MPC) meeting, RBI Governor Shaktikanta Das emphasised concerns about the aggressive growth strategies of some NBFCs and the potential risks they pose to financial stability.
He highlighted that while the overall health of the NBFC sector remains strong, certain outliers are pursuing unsustainable practices, such as high interest rates, excessive processing fees, and target-driven growth without sufficient risk management.
This has been particularly evident in microfinance loans, credit card debt, and unsecured consumption loans he said.
This move is part of the RBI's broader strategy to ensure that NBFCs and MFIs operate within a framework that protects consumers, especially in the context of small-value loans. The RBI has been actively working to mitigate issues related to unfair lending practices in the microfinance sector, particularly in light of the recent trends observed during its regulatory reviews.
(The copy was updated with Navi's response.)
Edited by Kanishk Singh