Navi Finserv, the digital lending platform of Flipkart founder Sachin Bansal, along with three other financial service providers — Asirvad Micro Finance, Arohan Financial Services, and DMI Finance– have been banned by the RBI from disbursing loans due to exorbitant lending rates.
In a major blow to Flipkart founder Sachin Bansal, his digital lending platform, Navi Finserv Limited, has been banned from disbursing loans to consumers. The ban on Navi Finserv, imposed by the Reserve Bank of India (RBI), will come into effect from October 21, according to reports.
Why RBI banned Navi Finserv?
According to RBI, Bansal’s Navi Finserv, along with three other financial service providers — Asirvad Micro Finance, Arohan Financial Services, and DMI Finance– were banned due to the exorbitant lending rates these companies charge their customers.
The four companies have been ordered to cease and desist loan disbursement and sanctioning from October 21, 2024, the RBI stated.
In a statement on Thursday, RBI said the directions have been conveyed to four NBFCs — 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 — through the central bank’s detailed supervisory orders.
“This action is based on material supervisory concerns observed in the Pricing Policy of these companies in terms of their Weighted Average Lending Rate (WALR) 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 stated.
The central bank added that the entities were also found not conforming with the provisions laid down under the Fair Practices Code issued by the Reserve Bank of India.
Will review RBI directions, says Navi Finserv
Responding to the ban, Navi Finserv said it will review the directions issued by the RBI and work with the central bank to address the concerns mentioned.
“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 received from the Hon’ble Reserve Bank of India and will work with them, and address all the concerns raised with promptness and completeness,” a spokesperson said.
Arohan Financial Services did not offer comments while Asirvad Micro Finance Limited and DMI Finance Private Limited have not issued an official response to the RBI ban.
RBI cracks down on ‘usurious practices’
The RBI has launched a crackdown against what it termed ‘usurious practices’ by NBFCs over the last few months, even while the bank said it has been sensitising its regulated entities through various channels on the need to use their regulatory freedom responsibly and ensure fair, reasonable and transparent pricing, especially for small value loans.
“However, unfair and usurious practices continued to be seen during the course of onsite examinations as well as from the data collected and analysed offsite,” it said.
Additionally, , these entities were variously found to be in non-adherence with the regulatory guidelines on assessment of household income and consideration of existing/ proposed monthly repayment obligations in respect of their microfinance loans, besides resorting to “usurious pricing”, the RBI said.
“Deviations were also observed in respect of Income Recognition and Asset Classification (IR and AC) norms resulting in evergreening of loans, conduct of gold loan portfolio, mandated disclosure requirements on interest rates and fees, outsourcing of core financial services, etc,” it added.