{"id":43018,"date":"2024-10-19T04:21:03","date_gmt":"2024-10-18T22:51:03","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=43018"},"modified":"2025-10-10T14:22:43","modified_gmt":"2025-10-10T08:52:43","slug":"rbi-bars-4-nbfcs-for-violating-loan-pricing-regulations","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/rbi-bars-4-nbfcs-for-violating-loan-pricing-regulations\/","title":{"rendered":"RBI Bars 4 NBFCs for Violating Loan Pricing Regulations"},"content":{"rendered":"<h2><strong>What\u2019s in today\u2019s article?<\/strong><\/h2>\n<ul>\n<li>Why in News?<\/li>\n<li>What is Digital lending?<\/li>\n<li>Need to regulate digital lending\u00a0<\/li>\n<li>Steps taken by to regulate digital lending<\/li>\n<li>RBI Bars Four NBFCs<\/li>\n<\/ul>\n<h2><strong>Why in News?<\/strong><\/h2>\n<p>The Reserve Bank of India (RBI) has prohibited four non-banking finance companies (NBFCs) from approving and disbursing loans.<\/p>\n<p>These four NBFCs are: Asirvad Micro Finance Ltd (backed by Manappuram Finance), Arohan Financial Services Ltd, DMI Finance (supported by Mitsubishi), and Navi Finserv (founded by Flipkart co-founder Sachin Bansal).\u00a0<\/p>\n<p>This action was taken due to their violation of several regulations, including charging excessively high interest rates.\u00a0<\/p>\n<p>The issue highlights a broader concern, as numerous NBFCs and lending apps, both legal and illegal, are reportedly engaging in predatory loan pricing and harsh recovery practices.<\/p>\n<h2><strong>What is Digital Lending?<\/strong><\/h2>\n<ul>\n<li>Digital lending is the process of availing credit online.\n<ul>\n<li>It involves lending through web platforms or mobile apps, utilising technology in customer acquisition, credit assessment, loan approval, disbursement, recovery and associated customer service.<\/li>\n<\/ul>\n<\/li>\n<li>Its increased popularity amongst new-age lenders can be attributed to expanding smartphone penetration, credit range flexibility and speedy online transactions.<\/li>\n<li>It includes products like Buy Now, Pay Later (BNPL), which is a financing option (or simply a short-term loan product).\n<ul>\n<li>BNPL allows one to buy a product or avail a service without having to worry about paying for it immediately.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><strong>Need to regulate digital lending\u00a0<\/strong><\/h2>\n<ul>\n<li><strong>Illegal lending apps in India<\/strong>\n<ul>\n<li>A report by the RBI, published in 2022, says that India has the maximum number of digital loan apps in the world.<\/li>\n<li>The report has marked 600 loan apps illegal and said that the central bank.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Low-income and financial unsavvy Indians are the targets<\/strong>\n<ul>\n<li>These apps mostly lend small sums between Rs 2,000 and Rs 10,000, targeting low-income and financial unsavvy Indians.\u00a0<\/li>\n<li>These loans come with huge interest rates and extortionate terms and conditions, to which borrowers have no recourse.<\/li>\n<li>This increases the vulnerabilities of these borrowers by exploiting the unmet need for credit.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Harassment by recovery agents<\/strong>\n<ul>\n<li>These apps demand access to contact lists and use harassing techniques for repayment, including abusive calls, messages, and even morphed images used to extort borrowers.\u00a0<\/li>\n<li>In extreme cases, victims have faced sexual harassment, with incidents leading to tragic consequences such as suicide.\n<ul>\n<li>In 2021, at least six people committed suicide in Hyderabad alone due to harassment by agents.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li><strong>Breach of privacy<\/strong>\n<ul>\n<li>With just one tap, borrowers allow these lenders to access everything on their phone. The lender also get access to information such as PAN and Aadhar details.<\/li>\n<li>The apps, on the pretext of advancing a loan, obtain all information from the customers&#8217; phones which could later be used by the company to perpetrate some other financial crime.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Acts as a tool for money laundering<\/strong>\n<ul>\n<li>More than a hundred apps related to loans, betting and dating successfully collected thousands of crores in revenue and repatriated them to China.<\/li>\n<\/ul>\n<\/li>\n<li><strong>This was revealed an investigation conducted by the <\/strong><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/what-is-the-enforcement-directorate-ed\/\" target=\"_blank\"><strong>Enforcement Directorate (ED)<\/strong><\/a><strong>.<\/strong><\/li>\n<\/ul>\n<h2><strong>Steps taken by to regulate digital lending<\/strong><\/h2>\n<ul>\n<li><strong>Role of RBI strengthened to address the issue<\/strong>\n<ul>\n<li><strong>RBI has been designated as the nodal department<\/strong> for dealing with complaints against unauthorised digital lending platforms as well as mobile apps.<\/li>\n<li>In August 2022, <strong>RBI issued the first set of guidelines for digital lending<\/strong> in order to combat illegal activities by certain players.<\/li>\n<li>These guidelines aimed at protecting customers from unethical business practices, such as mis-selling, breach of data privacy, unfair business conduct and charging of exorbitant interest rates adopted by digital lenders.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Multi-agency crackdown on illegal loan apps<\/strong>\n<ul>\n<li>In September 2023, Union Finance Minister chaired a meeting with appropriate officials and launched a <strong>multi-agency crackdown on illegal loan apps<\/strong>.\n<ul>\n<li>To curb the menace of illegal loan apps, the RBI has been asked to prepare a \u2018whitelist\u2019 of legal loan apps.<\/li>\n<li>At the same time, MEITY has been tasked with ensuring only such legal applications (list prepared by RBI) are available on app stores.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li><strong>Registration of payment aggregators<\/strong>\n<ul>\n<li>The RBI has been entrusted to ensure that the registration of payment aggregators be completed within a time frame.\n<ul>\n<li>A payment aggregator acts as a third party responsible for managing and processing merchants&#8217; online transactions.\u00a0<\/li>\n<\/ul>\n<\/li>\n<li>The RBI has also been entrusted with monitoring \u2018mule or rented\u2019 accounts that may be used for money laundering.<\/li>\n<li>RBI has further been asked to review and cancel dormant non-banking finance companies (NBFCs) to avoid their misuse by such app operators.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Public Repository for Digital Lending Apps<\/strong>\n<ul>\n<li>To curb illegal lending activities, the RBI has announced the creation of a <strong>public repository of digital lending apps (DLAs) <\/strong>deployed by regulated entities.\u00a0<\/li>\n<li>This repository, available on the RBI\u2019s website, will help borrowers verify whether a lending app is associated with a legitimate regulated entity, aiding in the identification of illegal apps.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><strong>RBI Bars Four NBFCs<\/strong><\/h2>\n<ul>\n<li><strong>About the news<\/strong>\n<ul>\n<li>The RBI has barred four non-banking finance companies (NBFCs) \u2014 Asirvad Micro Finance Ltd, Arohan Financial Services Ltd, DMI Finance, and Navi Finserv \u2014 from sanctioning and disbursing loans.\u00a0<\/li>\n<li>The action was based on violations related to their pricing policies, including excessive interest charges that did not adhere to RBI regulations.\u00a0<\/li>\n<li>While RBI has no upper limit on loan interest rates, it mandates transparency, which these NBFCs failed to comply with.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Regulatory Warnings Ignored<\/strong>\n<ul>\n<li>The RBI has consistently urged regulated entities to adopt fair, transparent, and reasonable pricing practices, especially for small loans.\u00a0<\/li>\n<li>Despite these warnings, usurious practices continued to surface during onsite examinations and offsite data analysis. N<\/li>\n<li>BFCs were found violating regulations on income assessment for microfinance loans, failing to comply with Income Recognition &amp; Asset Classification (IR&amp;AC) norms, and violating disclosure requirements on interest rates and fees.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<hr \/>\n<h3><strong>Q.1. Why did RBI bar four NBFCs from disbursing loans?<\/strong><\/h3>\n<p>RBI barred four NBFCs, including Asirvad Micro Finance and Navi Finserv, for charging excessive interest rates that violated the central bank&#8217;s pricing regulations. The RBI mandates transparency in pricing, which these NBFCs failed to comply with.<\/p>\n<h3><strong>Q.2. What steps has the RBI taken to regulate digital lending?<\/strong><\/h3>\n<p>The RBI has issued guidelines to regulate digital lending, emphasizing fair pricing, transparency, and customer protection. It has also created a public repository to help borrowers verify legal lending apps and avoid predatory platform.<\/p>\n<p><strong>News:<\/strong> <a href=\"https:\/\/indianexpress.com\/article\/business\/rbi-nbfc-loan-apps-excessive-interest-9626739\/\" target=\"_blank\" rel=\"nofollow noopener\">Usurious pricing by NBFCs, apps: Why the RBI acted against 4 entities and how borrowers end up paying excessive interest<\/a><\/p>\n<p><a href=\"https:\/\/pib.gov.in\/PressReleaseIframePage.aspx?PRID=2007736\" target=\"_blank\" rel=\"nofollow noopener\">PIB<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The RBI has barred Asirvad Micro Finance, Arohan Financial, DMI Finance, and Navi Finserv from loan disbursement due to excessive interest charges, raising concerns over unethical lending practices.<\/p>\n","protected":false},"author":5,"featured_media":43019,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-43018","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/43018","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=43018"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/43018\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/43019"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=43018"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=43018"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=43018"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}