The Reserve Bank of India (RBI) has barred four non-banking finance companies (NBFCs), including two microfinance institutions (MFIs), from sanctioning and disbursing loans for charging exorbitant interest rates to the borrowers.
- These four entities are Asirvad Microfinance, Arohan Financial Services (also an MFI), DMI Finance, which provides personal, consumption, and micro, small and medium enterprises loans, and Flipkart co-founder Sachin Bansal’s Navi Finserv, which offers home and personal loans.
- 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.
About Non-Banking Financial Company (NBFC)
- Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956.
- They are engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business.
- Not NBFCs: Any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.
- Difference with Banks: NBFC cannot accept demand deposits; NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself; deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
- No Non-banking Financial company can commence or carry on business of a non-banking financial institution without obtaining a certificate of registration from RBI.
- However, in terms of the powers given to the Bank, to obviate dual regulation, certain categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI.