By Swati Bhat and Siddhi Nayak
MUMBAI (Reuters) -India’s central bank barred four microfinance companies, which disburse small loans to lower-income borrowers, from sanctioning and disbursing loans due to “usurious” pricing and breaching regulatory norms, it said in a release on Thursday.
The ban on Asirvad Micro Finance, Arohan Financial Services, DMI Finance and Navi Finserv is effective from the close of business on Oct. 21, the Reserve Bank of India (RBI) said.
The companies’ pricing policies in terms of their weighted average lending rate (WALR) and the interest spread charged over their cost of funds were found to be excessive and did not adhere to regulations, the RBI said.
“In addition to usurious pricing, these NBFCs 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,” the RBI said.
It also noted deviations in terms of income recognition & asset classification (IR&AC) norms, which led to evergreening of loans, as well as how the firms managed their gold loan portfolio, handled mandated disclosures on interest rates and fees and outsourced core financial services, among other things.
The companies continued with these practices despite the RBI asking them, over the last few months, to use their regulatory freedom responsibly and ensure fair, reasonable and transparent pricing, especially for small-value loans, the regulator said.
None of the four non-banking financial companies (NBFCs) immediately replied to an email seeking comment.
The ban does not preclude the companies from servicing existing customers and carrying out collection and recovery processes as per rules, the RBI said.
The regulator said it would review its decision once the companies confirmed they had taken remedial action.
DMI Finance’s total loan book was 118.43 billion rupees as of end March, while that of Asirwad, a unit of Manappuram Finance, was at 102.95 billion rupees.
In August, DMI Finance had said it plans to raise funds from Japan’s Mitsubishi UFJ Financial Group at a valuation of about $3 billion to “ramp up” its lending.
(Reporting by Siddhi Nayak; Editing by Savio D’Souza)
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