RBI’s Bold Stand on NBFC Pricing: Time for Self-Reflection and Transparent Practices

The recent Reserve Bank of India (RBI) directive barring four prominent NBFCs—Asirvad Micro Finance Ltd (by Manappuram Finance), Arohan Financial Services Ltd, DMI Finance (backed by Mitsubishi), and Navi Finserv (founded by Sachin Bansal)—from disbursing loans has captured significant attention across the financial sector.

The RBI has now decided to create a public repository of digital lending apps deployed by the regulated entities in order to aid the customers in verifying the claim of DLAs’ association with regulated entities like banks and avoid illegal apps

?? What's at Stake?

The crux of RBI’s decision centers around the exorbitant interest charges these companies allegedly imposed on borrowers, raising concerns about transparency and fairness in their loan pricing policies. By taking this step, the RBI is reinforcing that all NBFCs must re-evaluate their pricing models to avoid excessive spreads in their Weighted Average Lending Rates (WALR).

But what does this mean for the rest of the industry? Let’s delve deeper into RBI’s expectations and why this matters.

Key Points for NBFCs: Ensuring Transparency & Fair Pricing

1. Board-Level Accountability:

The RBI isn’t just aiming for a select few; it’s an industry-wide alert! Boards across all NBFCs are expected to engage in clear, unambiguous discussions on pricing models and interest rates. Each board should review and align interest rate policies with the true cost of capital, risk premiums, and acquisition costs to avoid opportunistic pricing.

2. Transparent Pricing for Borrowers:

Fairness in lending is paramount. Borrowers should be able to understand the annualized interest rate they’re charged. No hidden charges, no vague fees. It’s a call to all NBFCs to ensure that loan terms are crystal clear to those they serve.

3. Scrutiny on “Extras”:

Many NBFCs derive revenue from auxiliary services and fees which, while beneficial, must remain within ethical bounds. Transparency around these additional earnings is essential. RBI’s push hints that excessive mark-ups or hidden charges will no longer be overlooked.

4. Granular Interest Rate Models:

RBI emphasizes a structured approach: from the cost of funds, risk premiums, to servicing costs, NBFCs must adopt granular and standardized models. Importantly, these models should not just be theoretical but practically embedded in everyday operations, leaving no room for “subjective interpretations.”

5. Self-Regulation & Future Readiness:

NBFCs are being urged to introspect and preemptively course-correct. It’s not about regulatory compliance alone—it’s about fostering trust and integrity with customers. Fair pricing isn’t just an RBI mandate; it’s a business necessity in today’s landscape.

A Turning Point for NBFCs?

RBI’s proactive measures are likely to lead to broader introspection across the NBFC sector. As we see these developments unfold, this could serve as a defining moment to align industry practices with a customer-first mindset, ensuring that finance, especially for vulnerable borrowers, is fair, transparent, and accessible.

Let’s ask ourselves:

- Are we, as NBFC leaders and stakeholders, taking proactive steps to reassess our pricing models?

- How are we ensuring that our boardrooms truly understand and support transparent pricing principles?

Let’s drive this conversation and learn from this regulatory reminder.

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