Crackdown on four NBFCs: 14% spread on loans prompted RBI action

The regulator took such stern action amid a risk of rural distress due to unfair practices

The four non-banking finance companies (NBFCs), including two microfinance institutions (MFIs), that faced regulatory wrath last week were mainly charging exorbitant rates to microloan borrowers from the most vulnerable sections, in order to maintain spreads of 14 per cent, sources familiar with the development said.

On October 17, the Reserve Bank of India barred four NBFCs — Asirvad Micro Finance, Arohan Financial Services, DMI Finance, and Navi Finserv — from sanctioning and disbursing loans, citing usurious interest rates charged by them for their microfinance borrowers. 
 

In March 2022, the RBI removed the pricing cap for microfinance loans, which