RBI bars 4 NBFCs from new loans from Oct 21

What the RBI has ordered

The Reserve Bank of India (RBI) has prohibited four non-banking financial companies (NBFCs) from sanctioning and disbursing loans, effective from the close of business on October 21, 2024. The entities named are Asirvad Micro Finance Ltd, Arohan Financial Services Ltd, DMI Finance Private Ltd, and Navi Finserv Ltd. RBI said it issued the Directions under Section 45L(1)(b) of the Reserve Bank of India Act, 1934. The central bank described the trigger as “material supervisory concerns” linked to how these lenders priced their loans. The action also reflects RBI’s wider scrutiny of lending practices, including concerns seen around digital lending apps accused of predatory lending and harsh recovery methods. The restriction is specifically on approving and disbursing new loans after the effective date.

Companies covered and where they are registered

Two of the four entities are microfinance institutions (MFIs), while two are in the investment and credit company (ICC) category. Asirvad Micro Finance is backed by Manappuram Finance, while Navi Finserv is promoted by Flipkart co-founder Sachin Bansal. DMI Finance is supported by Mitsubishi, as cited in the article. RBI’s published Directions list the category, certificate of registration (CoR) details, and the registered location for each entity. These details matter because the restrictions apply at the regulated-entity level, not only to a single product line.

The main issue: pricing policy, WALR and interest spread

RBI said its supervisory concerns were observed in the pricing policy of these companies. The central bank pointed to the weighted average lending rate (WALR) and the interest spread charged over the cost of funds. According to RBI, both were found to be excessive and not in adherence with applicable regulations. The article links this to allegations of unethical lending practices, including charging excessively high interest rates. RBI framed the issue as one of compliance with pricing-related norms, not merely a commercial decision. In practical terms, the regulator is signalling that how an NBFC prices risk and cost of funds must remain within the regulatory framework.

Which regulations RBI cited

RBI referenced two sets of Master Directions and also its Fair Practices Code expectations. For microfinance loans, it cited the Master Direction - Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022 dated March 14, 2022 (updated as on July 25, 2022). For the broader NBFC framework, it cited the Master Direction - Reserve Bank of India (Non-Banking Financial Company-Scale Based Regulation) Directions, 2023 dated October 19, 2023 (updated as on March 21, 2024). RBI also said the companies’ practices were not in conformity with provisions laid down under the Fair Practices Code. The combination of these references places the action within both product-level and entity-level regulatory expectations.

Borrower assessment concerns in microfinance lending

Beyond pricing, RBI indicated weaknesses in how loans were assessed before being sanctioned. The regulator said there was an indication that the four finance firms may have given loans without correctly evaluating borrowers’ ability to repay. RBI added that the NBFCs were variously found to be in non-adherence with guidelines on assessment of household income. It also flagged issues around considering existing or proposed monthly repayment obligations for microfinance loans. This matters because microfinance frameworks are designed to prevent over-borrowing and repayment stress by ensuring lenders verify income and obligations. In RBI’s telling, the concerns were not limited to one control gap, but reflected multiple deviations.

Other supervisory deviations flagged by RBI

RBI said deviations were found with regard to income recognition and asset classification (IR&AC) norms, leading to “evergreening” of loans. It also highlighted concerns about the conduct of the gold loan portfolio. The regulator said mandated disclosure requirements on interest rates and fees were not met in the manner required. RBI further pointed to outsourcing of core financial services as another area of deviation. Taken together, these flags span credit underwriting, asset quality reporting, product conduct and customer-facing disclosures. The article presents RBI’s action as the result of “various warning signs,” rather than a single isolated breach.

When the restriction takes effect and what it stops

RBI’s Directions require the four NBFCs to “cease and desist from sanction and disbursal of loans,” effective from close of business on October 21, 2024. The article also notes that “last month” RBI directed the Bengaluru-based Navi Finserv, New Delhi-based DMI Finance, Chennai-based Asirvad Micro Finance and Kolkata-based Arohan Financial Services to halt lending operations, citing discrepancies in their pricing policy. On Thursday, RBI reiterated that these entities are restricted from sanctioning and disbursing loans post October 21. The scope, as described, is on approval and disbursal of loans, rather than a broader licence cancellation. RBI’s language focuses on supervisory concerns and non-compliance with regulatory norms.

Why this matters for the NBFC and microfinance sector

A ban on fresh sanction and disbursal can immediately affect business momentum for lenders that rely on regular origination. In microfinance, compliance on pricing and borrower assessment is central because lending is typically unsecured and depends on disciplined underwriting. RBI’s emphasis on WALR and interest spread also signals that pricing will be scrutinised alongside customer protection expectations. The issues flagged on disclosure of interest rates and fees connect directly to how borrowers understand the total cost of credit. References to evergreening and IR&AC norms place attention on asset quality reporting and portfolio hygiene. The action adds to the regulatory focus on loan conduct, particularly where concerns have been raised about predatory lending and harsh recovery practices.

Market and operational impact: what can be inferred from the order

The immediate operational impact described is the halt on fresh loan sanctions and disbursals after the effective date. The order’s stated reasons indicate RBI expects these entities to align pricing policies with the relevant Master Directions and fair practices expectations. For customers, the focus of RBI’s findings implies tighter scrutiny on disclosed pricing and fees, and on assessment of repayment capacity. For the industry, the details show supervision is extending beyond headline pricing to underwriting processes, income assessment and monthly obligation checks. For regulated entities, the reference to outsourcing of core financial services indicates RBI is also examining how NBFCs structure operations and vendor dependencies. The article does not provide timelines for lifting restrictions, so any such outcomes remain outside the stated facts.

Key facts at a glance

Conclusion

RBI’s Direction against Asirvad Micro Finance, Arohan Financial Services, DMI Finance and Navi Finserv places loan pricing, borrower assessment and reporting standards at the centre of regulatory enforcement. The restrictions take effect from the close of business on October 21, 2024, and bar these NBFCs from sanctioning and disbursing loans. RBI has attributed the action to excessive pricing in WALR and interest spread and to multiple deviations across fair practices, underwriting checks, and operational compliance. The next key development for stakeholders will be any further communication from RBI or the companies on steps taken to address the supervisory concerns and restore compliance with the cited Master Directions.