RBI Imposes Ban on Loan Sanctions by Four NBFCs, Effective from October 21, 2024

The Reserve Bank of India (RBI) has taken strict action against four Non-Banking Financial Companies (NBFCs), including NBFC-Microfinance Institutions (NBFC-MFIs), prohibiting them from sanctioning and disbursing loans. This directive, under Section 45L(1)(b) of the Reserve Bank of India Act, 1934, will be effective from the close of business on October 21, 2024.

NBFCs Affected by RBI’s Directive

The following four NBFCs have been ordered to cease their loan sanction and disbursal operations:

1. Asirvad Micro Finance Limited
   • Category: MFI
   • Certificate of Registration (CoR): N-07.00769, dated September 27, 2016
   • Registered Office: Chennai
2. Arohan Financial Services Limited
   • Category: MFI
   • CoR: B-05.02932, dated June 28, 2018
   • Registered Office: Kolkata
3. DMI Finance Private Limited
   • Category: ICC
   • CoR: N-14.03176, dated January 5, 2009
   • Registered Office: New Delhi
4. Navi Finserv Limited
   • Category: ICC
   • CoR: N-02.00270, dated May 18, 2022
   • Registered Office: Bengaluru

RBI’s Rationale for the Ban

The RBI’s decision to issue these directions stems from several supervisory concerns. Key issues highlighted by the RBI include:

• Excessive Pricing Practices: The Weighted Average Lending Rate (WALR) and the Interest Spread over their cost of funds were deemed excessive and non-compliant with RBI’s guidelines.
• Non-Adherence to Regulations: These NBFCs were found to be violating the provisions laid down under the RBI’s Master Direction for Microfinance Loans (updated in July 2025) and the Non-Banking Financial Company–Scale Based Regulation Directions (updated in March 2024). These include non-compliance with Fair Practices Codes and regulatory guidelines related to pricing transparency.

Focus on Responsible Lending

The RBI emphasized that it has repeatedly advised NBFCs on the need for fair, reasonable, and transparent pricing, particularly for small-value loans. Despite these advisories, the NBFCs in question continued to engage in practices that violated these principles, resulting in this action. Onsite examinations and data analysis contributed to the findings.

Additional Regulatory Concerns

The RBI’s concerns extended beyond pricing issues. Other violations identified included:

• Non-Compliance with Household Income Assessments: The NBFCs did not properly assess household income before sanctioning loans.
• Loan Repayment Oversight: Proposed repayment obligations for microfinance loans were not adhered to in a manner consistent with RBI guidelines.
• Income Recognition and Asset Classification (IRAC) Norms: The NBFCs were also found to be in breach of IRAC norms, leading to the evergreening of loans.

The RBI’s decisive action against these four NBFCs underscores its commitment to promoting fair and responsible lending practices in the financial sector. Effective from October 21, 2024, these NBFCs will be barred from disbursing loans until they comply with the prescribed regulatory standards.

Tags: RBI ban, NBFC ban, loan sanctions, microfinance institutions, Asirvad Micro Finance, Arohan Financial, DMI Finance, Navi Finserv, RBI directive, financial regulations