India's central bank barred four non-bank finance companies (NBFCs) from sanctioning and disbursing loans due to "usurious" pricing and for charging a significant mark-up over their funding costs, it said in a release on Thursday.
The restrictions on Asirvad Micro Finance, Arohan Financial Services, DMI Finance and Navi Finserv will be effective from the close of business on Oct. 21, the Reserve Bank of India (RBI) said.
The NBFCs' pricing policies and the interest spread they charged over their cost of funds were found to be excessive and did not adhere to regulations, the RBI said.
The companies also did not adhere with the regulatory guidelines on assessment of household income of their microfinance loan borrowers and their repayment capability, the RBI said.
It also noted deviations in norms leading to ever-greening of loans and non-transparency in disclosing interest rates and fees to customers among other things.
The companies continued with these practices despite the RBI asking them, over the last few months, to use their regulatory freedom responsibly and ensure fair, reasonable and transparent pricing, especially for small-value loans, the regulator said.
The ban does not preclude the companies from servicing existing customers and carrying out collection and recovery processes as per rules, the RBI said.
A spokesperson for Navi Finserv, started by Sachin Bansal, founder of Indian e-commerce giant Flipkart, said the company was reviewing the circular and was committed to addressing all concerns raised "promptly and effectively".
DMI Finance, Asirvad Micro Finance and Arohan Financial did not immediately respond to Reuters requests for comments.
The RBI would review its decision once the companies confirm they have taken remedial action, it added.
Some Indian NBFCs are aggressively pursuing growth and chasing excessive returns on equity, which could pose financial stability risks, the central bank governor Shaktikanta Das said last week.
Over the past year, the RBI has warned the financial sector against "all forms of exuberance", tightened rules for credit card and personal loans, made it more expensive for NBFCs to borrow from banks and imposed restrictions on non-compliant entities.
These steps have cooled overall bank loan growth across the sector to 13.6% in August from 15% a year ago.
Navi Finserv's loan book stood at 80.37 billion rupees as of March end, and Arohan's at 661.57 million rupees for the same period.
DMI Finance's loan book totalled 118.43 billion rupees as of March end, while Asirvad's, a unit of Manappuram Finance (MNFL.NS), stood at 1.03 billion rupees.
