Former Flipkart CEO Sachin Bansal has had a difficult relationship with the country’s regulators, failing to get a banking license for his new venture, but his NBFC has now been dealt with another blow.
The Reserve Bank of India has asked Navi Finserv to cease and desist the the sanction and disbursal of loans. The RBI also imposed similar restrictions on three other companies including Asirvad Micro Finance Ltd, Arohan Financial Services Ltd and DMI Finance. The RBI said that it had observed concerns in the pricing policy of these companies which were not in adherence with regulations.
RBI hinted that these companies were charging rates of interest from customers which were not in keeping with regulations. RBI said that it had observed concerns in the Pricing Policy of these companies in terms of their Weighted Average Lending Rate (WALR) and the Interest Spread charged over their cost of funds, which were found to be excessive.
In addition to usurious pricing, these NBFCs were variously found to be in nonadherence with the regulatory guidelines on assessment of household income and consideration of existing or proposed monthly repayment obligations in respect of their microfinance loans, RBI said.
This ban of disbursal of loans will come as a blow to Navi Finserv. Navi Finserv provided customers with instant cash loans up to Rs. 20 lakh with interest rates starting at 9.99 percent per year and loan durations of up to 84 months. Navi claimed to have instant disbursal and a completely paperless process in disbursing loans. As of March 2023, Navi Finserv had reported an asset under management (AUM) of approximately Rs. 70 billion.
Navi Finserv had started off as Chaitanya Finance in 2012, and had been acquired by Sachin Bansal and rebranded to Navi Finserv in 2020. In 2021, Navi Finserv had applied for a banking license, but the license had been declined by the RBI in 2022. The RBI had the said that Navi had not been found suitable for granting of in-principle approval to set up a bank.
But the Reserve Bank now has gone a step further, and banned Navi Finserv from even disbursing loans. The move could all but cripple the operations of the NBFC, which relies on disbursing loans as its core business model. RBI’s action on Navi is reminiscent of a similar action it had taken on Vijay Shekhar Sharma’s Paytm Payments Bank last year, which had all but crippled the operations of the bank. And with RBI striking down similarly on Sachin Bansal’s Navi Finserv, India’s tech entrepreneurs are discovering that navigating the many regulations can be quite a challenge in India’s fintech space.