RBI governor on NBFC crackdown: Actions in ‘best interest of customers’ | Exclusive

Reserve Bank of India (RBI) Governor Shaktikanta Das believes that both the banking and Non-Banking Financial Company (NBFC) sectors remain robust, with regulatory and financial parameters remaining strong. However, in an exclusive interaction with CNBC-TV18, he said the central bank has tightened oversight on certain NBFCs and microfinance institutions (MFIs) to protect customer interests and maintain sectoral health.

The RBI recently took a firm stance by halting the loan disbursement activities of four NBFCs: Asirvad Micro Finance Limited, Arohan Financial Services Limited, DMI Finance Private Limited, and Navi Finserv Limited.

Effective from October 21, 2024, the action was taken under Section 45L(1)(b) of the RBI Act, 1934.

This move, according to the RBI governor, comes after extensive engagement with these institutions, which had failed to implement the necessary corrective measures.

“We act when we see that appropriate corrective action is not taken; we engage first,” Das said in an exclusive conversation with CNBC-TV18.

While the overall NBFC sector is sound, Das has earlier also expressed concerns about a few companies aggressively prioritising rapid growth over sustainable business practices and risk management.

In the latest Monetary Policy Committee (MPC) review on October 9, Das cautioned NBFCs against reckless expansion.

“Self-correction is the desired outcome of this message,” he said, adding that some NBFCs, driven by high return targets, are pushing for growth that could lead to risky lending practices.

Governor Das stressed the danger of NBFCs and MFIs adopting “growth-at-any-cost” approaches, which often result in high interest rates and mounting debt burdens for borrowers.

Additionally, he criticised some NBFCs for charging interest rates that “border on usurious,” posing serious risks to financially vulnerable borrowers.

A recent Morgan Stanley report suggests that further regulatory actions could impact other lending companies if similar trends persist. The report notes a sharp rise in credit costs at Asirvad and other NBFCs, which, if unchecked, could strain the sector’s stability.

However, Morgan Stanley clarified that RBI’s intentions are not to stifle lending growth in the NBFC and MFI space but rather to ensure responsible lending practices across the industry.

The RBI has also made it clear that fostering a compliance-first culture within NBFCs is essential for maintaining financial stability.