The Reserve Bank of India (RBI) has directed four non-banking financial companies (NBFCs), including Asirvad Micro Finance Limited, a material subsidiary of Manappuram Finance, to cease loan sanctions and disbursals effective October 21, 2024, citing excessive interest rates and regulatory violations.
The shares of Manappuram Finance Limited were trading at ₹151 down by ₹26.33 or 14.85 per cent on the NSE today at 10.50 am.
The central bank’s action, announced on October 17, also affects Arohan Financial Services Limited, DMI Finance Private Limited, and Navi Finserv Limited. The directive comes after the RBI identified material supervisory concerns regarding their Weighted Average Lending Rate and interest spread charged over cost of funds.
The NBFCs were found to be non-compliant with the RBI’s Master Direction on Regulatory Framework for Microfinance Loans (March 2022) and Master Direction on Non-Banking Financial Company Scale Based Regulation (October 2023). The regulator noted violations of Fair Practices Code guidelines as well.
In response, Manappuram Finance announced that its board will convene urgently to implement corrective actions. The company assured that Asirvad Microfinance will continue servicing existing customers and maintaining collection processes in accordance with regulatory guidelines.
The RBI highlighted additional violations, including improper household income assessment, deviation from Income Recognition & Asset Classification norms, and issues with gold loan portfolio management. The regulator mentioned that despite sensitising regulated entities about responsible pricing practices, unfair and usurious practices persisted.
The restrictions will be reviewed once the companies confirm implementation of suitable remedial actions, particularly regarding their pricing policy, risk management processes, and customer service aspects, to the RBI’s satisfaction.
These NBFCs can continue servicing existing customers and handling collections while the restrictions are in place.