Factbox: Indian central bank's restrictions on financial firms amid increased scrutiny

Bank of Baroda

18/10/2024 05:38

(Updates Factbox published on May 30 with recent RBI actions)
    By Jaspreet Kalra and Siddhi Nayak
       MUMBAI, Oct 18 (Reuters) - The Reserve Bank of India's
(RBI) increased scrutiny of banks and other financial firms has
resulted in a spate of supervisory restrictions, most recently
on four non-banking finance companies due to concerns related to
loan pricing practices.
    On Thursday, the RBI said Asirvad Micro Finance, Arohan
Financial Services, DMI Finance and Navi Finserv are restricted
from sanctioning and disbursing loans post Oct. 21.
    The pricing policies of these non-banking financial
companies (NBFC) and the interest spread they charged over their
cost of funds were found to be excessive and not in adherence to
regulations, the RBI said.
    Since 2020, the RBI has placed business restrictions on many
players. The following are some of its key actions: 
    
    HDFC BANK
    In December 2020, the RBI ordered HDFC Bank to stop all
launches of new digital products and issuance of new credit
cards following multiple outages on the bank's digital banking
channels. 
    The restrictions lasted until March 2022, which hindered the
bank's business growth, contributing to underperformance of its
stock compared to its peers. 
    
    BANK OF BARODA
    In October 2023, the central bank barred state-run Bank of
Baroda from adding customers to its mobile app,     India's
retail inflation accelerated to a nine-month high of 5.49% in
September. 
    Al Jazeera reported that Bank of Baroda had linked mobile
numbers of strangers to boost registrations on the application,
compromising security. 
    The restriction was lifted in May after the bank rectified
the deficiencies.
        
  
    BAJAJ FINANCE
    In November 2023, the RBI ordered India's largest NBFC,
Bajaj Finance, to stop offering loans under two of its lending
products. 
    The restrictions were levied due to non-adherence with the
central bank's digital lending guidelines and were reversed in
May.
  
    PAYTM PAYMENTS BANK
    At the end of January 2024, the RBI asked Paytm Payments
Bank to wind down its operations by March 15 due to persistent
compliance issues and supervisory concerns. 
    Reuters reported that the RBI's concerns stemmed largely
from violations of rules on customer due diligence, use of funds
and technology infrastructure.
    
    IIFL FINANCE    
    In early March 2024, the RBI barred IIFL Finance, an NBFC,
from offering gold loans, citing concerns about the lender's
assessment of the gold collateral and violations of the maximum
permitted loan-to-value ratio, among other issues. 
    The restrictions were lifted in September. 
    
    JM FINANCIAL
    Also in March 2024, NBFC JM Financial was barred from giving
out loans against shares and debentures due to regulatory
violations and governance concerns. 
    The central bank said it found serious deficiencies in
respect of loans sanctioned by the company for IPO financing.
The non-bank lender continues to be barred from operating in the
segment.
    
    KOTAK MAHINDRA BANK:
    In April, the RBI asked private lender Kotak Mahindra Bank
to stop adding clients digitally and issuing credit cards citing
to gaps in its IT infrastructure. The restrictions are still in
effect.
    
    EDELWEISS ASSET RECONSTRUCTION, ECL FINANCE: 
    In May, the RBI had barred Edelweiss Asset Reconstruction Co
Ltd (EARCL) and non-banking firm ECL Finance (ECL) from
acquiring financial assets or undertaking structured
transactions, saying that the two entities engaged in
"evergreening" distressed loans. 
    The restrictions continue to be in effect.

 (Reporting by Jaspreet Kalra and Siddhi Nayak; Editing by
Nivedita Bhattacharjee and Sonia Cheema)
 ((jaspreet.kalra@thomsonreuters.com; +91-8769636545;))