RBI bars Sachin Bansal’s Navi Finserv, three other NBFCs from lending over pricing violations

The Reserve Bank of India (RBI) has temporarily barred four non-bank lenders—Sachin Bansal’s Navi Finserv, DMI Finance, Asirvad Micro Finance Ltd (backed by Manappuram Finance), and Arohan Financial Services Ltd—from sanctioning and disbursing new loans from the close of business on 21 October, citing material supervisory concerns related to loan pricing practices.

“This action is based on material supervisory concerns observed in the pricing policy of these companies in terms of their weighted average lending rate (WALR) and the interest spread charged over their cost of funds, which are found to be excessive and not in adherence with the regulations,” the RBI said in a statement on Thursday.

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The central bank also noted that the breaches were not limited to pricing. 

The lenders failed to follow the Fair Practices Code, violated rules around income assessments, and disregarded loan repayment capacity norms for microfinance borrowers. Inspections also uncovered concerns related to evergreening of loans, asset classification, gold loan portfolio practices, and non-compliance with disclosure mandates. Additionally, some had outsourced core financial services, compounding regulatory risks.

The ban hits these lenders at a critical juncture. 

Asirvad Micro Finance is gearing up for a ₹1,500 crore initial public offering (IPO), and Arohan Financial Services’ managing director, Manoj Nambiar, was appointed chairperson of the Microfinance Industry Network (MFIN) just a few months ago. The crackdown is also a blow to Navi, which is still reeling from the RBI’s rejection of its application for a universal banking licence two years ago.

Meanwhile, DMI Finance had secured a significant boost in August when Japan’s MUFG Bank doubled down with an additional investment of ₹2,798 crore, bringing its total stake to ₹4,712 crore. Navi, DMI, and the others must now navigate this regulatory turbulence to maintain investor confidence and operational continuity.

In response, Navi Finserv Ltd said it was committed to conducting its business operations with the highest standards of compliance, customer service, and transparency. “The company is reviewing the directions received from the Hon’ble Reserve Bank of India and will work with them, and address all the concerns raised with promptness and completeness.”

“Over the last few months, the RBI has been sensitising its regulated entities through various channels on the need to use their regulatory freedom responsibly and ensure fair, reasonable and transparent pricing, especially for small value loans,” it added.

Lenders’ profiles

Navi’s core business focuses on personal loans of up to ₹20 lakh, with interest rates ranging between 9.9% to 45% per annum. As of 30 June, its assets under management (AUM) stood at ₹11,725 crore, with digital personal loans comprising ₹10,439 crore, according to Crisil. However, earnings have remained subdued due to higher credit costs and operational expenses.

DMI Finance, meanwhile, has shifted its focus from corporate real estate lending to digital personal loans and affordable home loans in recent years. Its loan book stood at ₹1,685 crore as of 30 June, with an average ticket size of ₹10 lakh and interest rates ranging from 12% to 40%. Earlier this year, DMI acquired troubled BNPL startup ZestMoney.

Asirvad Microfinance, backed by Manappuram Finance, had an AUM of ₹12,310 crore as of June 2024. Manappuram increased its stake to 97.5% in February 2015. Despite reporting a ₹100 crore net profit in June 2024, the figure marked a significant drop from ₹458 crore at the end of March 2024, according to Crisil.

Arohan, with an AUM of ₹6,339 crore, concentrates primarily on West Bengal, Bihar, and Uttar Pradesh. The company reported a net profit of ₹211 crore for the nine months ending in FY2024, a jump from ₹71 crore in FY2023, according to Icra Ltd.

RBI’s warnings

The RBI clarified that the restrictions only apply to new lending; the affected non-banking finance companies (NBFCs) can continue servicing their existing customers and proceed with collections under regulatory guidelines. 

“These business restrictions will be reviewed upon receipt of confirmation from the companies regarding suitable remedial action having been taken to adhere to the regulatory guidelines at all times, more particularly their pricing policy, risk management processes, customer service and grievance redressal aspects,” the RBI added.

The central bank’s crackdown follows months of heightened scrutiny. In recent speeches and policy updates, RBI governor Shaktikanta Das issued repeated warnings to non-bank financiers and micro-lenders about usurious interest rates. 

Last November, Das had urged microfinance firms to be judicious in setting interest rates, highlighting that some lenders were enjoying unusually high net interest margins.

The October monetary policy reinforced these concerns, with the RBI warning NBFCs against chasing “growth at any cost,” cautioning that such practices could jeopardize financial stability.

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The current situation also reflects a shift in the RBI’s approach to pricing regulation. In March 2022, the central bank removed explicit pricing caps on microfinance loans, instead asking lenders to develop internal pricing policies approved by their boards. These policies were expected to include ceilings on interest rates and associated fees, though the RBI no longer dictated those limits.