The Reserve Bank of India (RBI) has banned four non-banking finance companies (NBFCs) from sanctioning and distributing loans. This step has been taken due to high interest rates and violation of other rules. The affected companies include Ashirvad Micro Finance, Arohan Financial Services, DMI Finance, and Navi Finserv. This decision of RBI will come into effect on October 21, and its purpose is to ensure transparency and discipline in the financial sector.

The problem with interest rates

RBI said that these companies have charged more interest from the customers than the rules. Due to this, they had to face action. RBI clarified that these companies will be able to provide services to their existing customers, but will not be able to sanction new loans.

Violation of other rules

The interest paid on the Weighted Average Lending Rate (WALR) and cost of funds of these companies was also very high, which is against the rules of RBI. RBI said that these companies have been victims of action due to non-compliance with many rules.

lack of transparency

Some time ago, RBI had directed to bring transparency in small-value loans. However, these companies continued to adopt unfair practices. RBI Governor Shaktikanta Das said on 9 October 2024 that they are keeping an eye on the activities of some NBFCs and will not shy away from taking action if needed.

Restrictions will be removed after the amendment.

RBI has said that this ban will continue until the companies make the necessary improvements to ensure compliance with the rules. This will include improvements in their pricing policies, risk management processes, customer service, and problem-resolution methods. RBI's objective is to ensure that all companies follow its rules properly.

It is worth noting that this step of RBI is important to promote discipline and transparency in the financial sector. It ensures that customers get proper and unbiased financial services. This step taken against these companies is also a warning to other companies that it is mandatory to follow the rules.