Reserve Bank of India (RBI) Governor Shaktikanta Das believes that the banking and non-banking financial companies (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 strengthened supervision of some NBFCs and microfinance institutions (MFIs) to protect the interests of customers and maintain the health of the sector.

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

With effect from October 21, 2024, the action has been taken under section 45L(1)(b) of the RBI Act, 1934.

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

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

While the NBFC sector as a whole is healthy, Das also earlier expressed concerns that a few companies are aggressively prioritizing rapid growth over sustainable business practices and risk management.

In the latest review of the Monetary Policy Committee (MPC) on October 9, Das warned 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 which could lead to risky lending practices.

Governor Das highlighted the danger of NBFCs and MFIs adopting “growth at all costs” approaches, which often result in high interest rates and increasing debt burden for borrowers.

Further, he criticized some NBFCs for charging “borderline usury” interest rates, posing serious risks to financially vulnerable borrowers.

A recent report from Morgan Stanley suggests that new regulatory measures could impact other lending companies if similar trends persist. The report notes a sharp rise in credit costs in Asirvad and other NBFCs, which, if left unchecked, could undermine the stability of the sector.

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

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