RBI lifts curbs placed on Arohan Financial Services; approves bank merger

The Reserve Bank of India (RBI) today removed supervisory restrictions placed on Arohan Financial Services after it was satisfied with the submissions made by the company. The RBI had directed the NBFC to "cease and desist" from sanction and disbursal of loans, effective from October 21, 2024. Along with Arohan Financial Services, the curbs were also placed on three more NBFCs, Asirvad Micro Finance, DMI Finance Private Ltd, and Navi Finserv Limited.

"The company initiated remedial action and submitted its various compliances to the Reserve Bank. Now, having satisfied itself based on company’s submissions, and in view of their adoption of revamped processes, systems, and the company’s commitment to ensure adherence to the Regulatory Guidelines on an ongoing basis, especially for ensuring fairness in the loan pricing, the Reserve Bank has decided to lift the afore-mentioned restrictions placed on Arohan Financial Services Limited, with immediate effect," the RBI statement says.

The action against these NBFCs was based on material supervisory concerns observed 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.

Over the last few months, the Reserve Bank has been sensitising the regulated entities through various channels on the need to use freedom "responsibly and ensure fair, reasonable and transparent pricing", especially for small-value loans. However, the central bank has observed unfair and usurious practices during its onsite examinations.

"These NBFCs were variously found to be in non-adherence with the regulatory guidelines on assessment of household income and consideration of existing / proposed monthly repayment obligations in respect of their microfinance loans. Deviations were also observed in respect of Income Recognition & Asset Classification (IR&AC) norms resulting in evergreening of loans, conduct of gold loan portfolio, mandated disclosure requirements on interest rates and fees, outsourcing of core financial services, etc," the RBI had said in its order.

Meanwhile, the RBI decided to lift the restrictions placed on former Flipkart co-founder Sachin Bansal-led Navi Finserv on December 2, 2024. The RBI said it had several rounds of interaction with the company for the rectification of deficiencies, and after having satisfied itself based on the company’s submissions, the curbs were lifted.

Bank Amalgamation Approved

The Reserve Bank of India (RBI) also sanctioned the Scheme of Amalgamation of The National Co-operative Bank Ltd., Bangalore (Karnataka) with Cosmos Co-operative Bank Limited (Maharashtra) today.

The scheme will come into force with effect from January 06, 2025. "The branches of The National Co-operative Bank Ltd., Bangalore (Karnataka) will function as branches of Cosmos Co-operative Bank Limited (Maharashtra) with effect from January 06, 2025."