RBI Halts Loan Sanctions of Four NBFCs Over Regulatory Non-Compliance

The Reserve Bank of India has directed four non-banking financial companies to stop issuing new loans due to high interest rates and regulatory non-compliance. These actions follow supervisory investigations uncovering excessive pricing policies and violations of microfinance regulations.

The Reserve Bank of India (RBI) has imposed strict restrictions on four non-banking financial companies (NBFCs) by halting their loan sanctions and disbursals. This measure targets microfinance institutions among others, due to excessive interest rates and non-compliance with financial regulations.

According to an RBI statement, these decisions derive from supervisory reviews highlighting significant concerns in the companies' pricing policies, particularly regarding Weighted Average Lending Rate (WALR) and Interest Spread over cost of funds. These have been found to contravene the RBI's regulatory framework.

The reviewed entities were discovered to employ questionable pricing for loans and failed to align with RBI's fair practice guidelines. Such practices persisted despite previous warnings, revealing flaws in income recognition and asset classification, leading to prohibited practices like loan 'evergreening'.

Despite restrictions on new loans, RBI permits these firms to maintain existing customer accounts and loan recovery. The restrictions will hold until corrective actions align their operations with guidelines, enhancing risk management and customer service standards.

(With inputs from agencies.)