The other two companies are Manappuram Finance-promoted Asirvad Micro Finance Ltd and Kolkata-based MFI Arohan Financial Services Ltd. The RBI’s directive comes into effect from the close of business on October 21, the central bank said in a statement on Thursday.
“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. The action comes less than 10 days after central bank governor Shaktikanta Das warned some non-banking finance companies (NBFCs), microfinance companies (MFCs) and housing finance companies (HFCs) against “aggressively pursuing growth without building up sustainable business practices.”
On October 9, while detailing the RBI’s monetary policy statement, he flagged concerns about some finance companies charging usurious rates, unreasonably high processing fees and frivolous penalties in their pursuit of “growth at any cost”. He also stated that the RBI will “not hesitate to take appropriate action, if necessary”, adding that “self-correction by NBFCs, however, would be the desired option”.
ANavi Finserv spokesperson said, “The company is reviewing the directions received from RBI and will work with them, and address all the concerns raised with promptness and completeness.” Asirvad Micro Finance said it is working on a detailed plan and will submit the same to the RBI within the stipulated timelines. “This matter has been immediately brought to the notice of our board and a meeting has been convened urgently to take immediate action,” it said in a statement.
The central bank said Thursday that the bans were imposed after various warning signs. “This action is based on material supervisory concerns observed in the pricing policy of these companies in terms of their weighted average lending rate 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 said.There was an indication that the four finance firms may have given loans without correctly evaluating borrowers’ ability to repay. “In addition to usurious pricing, the four NBFCs were found to have variously violated rules on assessment of household income and consideration of existing or proposed monthly repayments related to microfinance loans,” the RBI said. “Deviations were also found with regard to income recognition and asset classification norms, leading to the evergreening of loans, conduct of the gold loan portfolio, mandated disclosure requirements on interest rates and fees and outsourcing of core financial services.”The RBI said that over the last few months, it has been sensitising regulated entities on the need to ensure fair, reasonable and transparent pricing. The restrictions do not prevent the companies from servicing existing customers and conducting collection and recovery processes in adherence with regulations, the central bank said. “These business 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,” the central bank said.
