The Reserve Bank of India (RBI) on Thursday directed Navi Finserv, founded by Sachin Bansal, and three other Non-Banking Financial Companies (NBFCs) to immediately cease loan sanctioning and disbursal due to significant supervisory concerns. This directive will take effect from the close of business on October 21, 2024.

The central bank's action stems from "material supervisory concerns," specifically pointing to excessively high pricing of loans by the NBFCs. The companies flagged include 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.

In its statement, the RBI highlighted issues with the pricing policies of these firms, citing their Weighted Average Lending Rate (WALR) and the Interest Spread charged over their cost of funds, which were deemed excessive and not in line with regulatory norms. Additionally, the companies were found in violation of the RBI’s Fair Practices Code.

"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, which are excessive and non-compliant with regulations," the RBI stated.

A spokesperson for Navi Finserv responded to the RBI’s directive, saying, "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 from the RBI and will address the concerns raised with promptness and completeness." Other companies, including Arohan Financial Services, Asirvad Micro Finance, and DMI Finance, have yet to comment.

The RBI emphasized that it had previously warned regulated entities about maintaining fair, transparent, and reasonable pricing, particularly for small-value loans. Despite these warnings, the central bank noted continued evidence of "unfair and usurious practices" during inspections and data analysis.

Beyond the pricing issues, the RBI found additional violations, including non-compliance with guidelines on household income assessment, monthly repayment obligations for microfinance loans, and deviations in loan classification norms. Some companies were also found to be engaging in evergreening of loans and not meeting mandated disclosure requirements on interest rates and fees.

The restrictions are effective from October 21, 2024, allowing these NBFCs to close any pending transactions. However, they can continue servicing existing customers and managing collections under current regulatory guidelines.

The RBI stated that these restrictions may be lifted if the companies take suitable remedial actions, especially in terms of their pricing policies, risk management, customer service, and grievance redressal processes, to the central bank’s satisfaction.