RBI Take on NBFCs

On October 17, 2024, the Reserve Bank of India (RBI) issued a “cease and desist” order against four NBFCs.

• The NBFCs banned were Navi Finserv, Arohan Financial, Asirvad Microfinance, and DMI Finance.
• By December 2024, Navi Finserv was the first to have its ban revoked.

• Some Notable Bans
  • Kotak Mahindra Bank:
    • Ban on new credit card issuance from December 2, 2020, to August 17, 2021.
  • Bajaj Finance:
    • Loan sanction and disbursal ban through e-commerce and Insta EMI Card from November 15, 2023 to May 2, 2024.
  • Mahindra Finance:
    • Ban on customer acquisition through online/ mobile banking and fresh credit card issuance from April 24, 2024 to Till date.
  • Edelweiss ARC:
    • Recovery/repossession ban through outsourcing arrangement from September 22, 2022 to January 4, 2023.
  • ECL Finance:
    • Prohibition on wholesale exposure structured transactions from May 29, 2024, to December 17, 2024.

• Rapid Reversal Significance
  • Shortest Restriction Period:
    • The lifting of restrictions marks the shortest period of business restrictions since the imposition of the restrictions in 2020.
  • Possible Policy Shift:
    • The swift resolution under Governor Malhotra may indicate a shift towards faster corrective measures for NBFCs.
  • Regulation and Growth:
    • The fast lifting of the restrictions suggests that regulation is keen on maintaining financial discipline without inhibiting growth in the NBFC sector.

RBI’s Regulations on Asset Qualification Norms