Reserve Bank walks the talk

The NBFCs, which have been punished or are likely to be punished, should bring down the usurious interest rates, high fees, and penalties without losing time

-  TAMAL BANDYOPADHYAY

The idiom, "all bark and no bite", doesn't seem to have a place in the Indian banking regulator's lexicon.

Just about a week after giving a stern warning to errant non-banking financial companies (NBFCs), the Reserve Bank of India (RBI) last week issued an order directing four of them to cease and desist from sanctioning and disbursing fresh loans.

Asirvad Micro Finance Ltd, Arohan Financial Services Ltd, DMI Finance Pvt Ltd, and Navi Finserv Ltd form this quartet.

"Usurious pricing" apart, these NBFCs were found to be not complying with regulatory guidelines on the assessment of household income and the borrowers' ability to service the monthly instalment of loans. Among other deviations, they also seemed to have indulged in "evergreening" of loans the practice of giving fresh loans to pay off the earlier ones.

The RBI order has not mentioned the cross-selling of different products by the He didn't beat about the bush. Das's three critical observations are: Some of the NBFCs are aggressively pursuing growth without building sustainable business practices and risk-management frameworks. An imprudent "growth-at-any-cost" approach would be counterproductive for their own health.

■Some of them-including microfinance institutions (MFIS) and housing finance companies (HFCS) - are chasing excessive returns on equity, driven by their investors. They are making money by charging "usurious" interest rates and "unreasonably high processing fees and frivolous penalties". Their balance sheets are growing, mainly because of the "push effect" rather than NBFCs. I don't know BANKER'S TRUST about these four but typically, beyond loans, the NBFCs sell different products to their borrowers.

Earlier, mobile phone, insurance policies, solar lantern and inverter light were on the sale list. Now, pressure cooker, mixer-grinder and even TV and refrigerator are sold along with loans.