Financial Services

RBI's NBFC crackdown isn’t meant to kill India’s credit story but protect it

Dr Srinath Sridharan

October 21, 2024 | 7 Min Read

The RBI stepping in to curb excesses at NBFCs such as DMI Finance and Sachin Bansal’s Navi Finserv is a major reality check for India’s fintech lending rush. RBI’s action, however, isn’t meant to undermine India’s non-bank lenders but to ensure their long-term health.

Key Takeaways

The RBI has barred four non-banking financial companies (NBFCs), including Sachin Bansal’s Navi, for violating regulatory standards, particularly regarding pricing policies
Far from stifling innovation, RBI wants to create a more stable and trustworthy lending landscape, protecting lenders from their worst impulses
RBI’s move underscores its commitment to protecting consumers from predatory lending practices, excessive interest rates, and hidden charges
It should serve as a wake-up call for fintechs, highlighting the need for companies to align their business models more closely with regulations and ethical lending practices

On October 17, The Reserve Bank of India (RBI) took decisive action against four non-banking financial companies (NBFCs) and NBFC-micro finance institutions (NBFC-MFIs)—Sachin Bansal's Navi Finserv, Arohan Financial Services, Manappuram-backed Asirvad Micro Finance, and DMI Finance. It ordered the four entities to cease and desist from sanctioning and disbursing loans due to material supervisory concerns.

The central bank took issue with, among other things, the pricing policy of these companies, specifically in relation to their Weighted Average Lending Rate (WALR) and the excessive interest spreads charged over their cost of funds, which violated regulatory standards.

Additionally, the RBI found these entities were not compliant with guidelines on assessing household income and considering existing or proposed monthly repayment obligations for microfinance loans, further aggravating the issue of non-compliance.

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