Sachin Bansal's Troubles Mount as RBI Bars Navi Finserv from Issuing New Loans

Ever since Sachin Bansal quit the e-commerce major Flipkart in 2018 following internal rifts, his troubles have never come to a halt. This time they are in the form of an RBI direction that temporarily barred Navi Finserv, his investment and credit venture, from sanctioning and disbursing new loans from the close of business on 21 October, citing supervisory concerns related to loan pricing practices. Three other non-banking lenders were also pulled up by the central bank.

The regulator has expressed concerns regarding the exorbitant lending rates charged by the company. "This action is 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, which are found to be excessive and not in adherence with the regulations," it said in a statement.  

Not limited to pricing, the breaches included failure to follow the Fair Practices Code, violation of rules around household income assessments and disregard for loan repayment capacity norms for microfinance borrowers. Concerns relating to evergreening of loans, asset classification, gold loan portfolio practices and non-compliance with disclosure mandates were also raised by the central bank.

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These business restrictions, however, do not prevent the companies from servicing their existing customers and carrying out collection and recovery processes under regulatory guidelines.

Previously known as BAC Acquisitions, Navi Finserv said that it was committed to conducting its business operations with the highest standards of compliance, customer service and transparency, and that it was reviewing RBI’s directions and would address its concerns promptly. 

Bansal’s Mounting Troubles 

Two years ago, RBI rejected Navi Finserv’s application for small finance bank licences and universal bank licences after an examination. A year before that, Bansal was issued a notice by the Enforcement Directorate for alleged violation of regulations under the Foreign Exchange Management Act. The case related to an allegation that Flipkart violated laws after attracting foreign investment. 

Other than the ED notice, six cases against Bansal were filed in various courts between 2015 and 2021, due to his association with Flipkart as co-founder. These are on top of the other cases against him, relating to his personal life, including the one filed by his wife.

RBI’s Increased Scrutiny

Earlier this month, in RBI monetary policy committee meeting, governor Shaktikanta Das issued a strong warning to non-banking lenders, especially microfinance institutions and housing finance companies, for aggressively chasing “growth at any cost” that could threaten the economy’s financial stability.  

Last year in November also, Das warned microfinance firms to be judicious in setting interest rates, highlighting that some lenders were enjoying unusually high net interest margins. 

In March 2022, RBI removed pricing caps from microfinance institution loans, relying on these lenders to have internal policies that are approved by their boards. These policies were mandated to include a ceiling on the interest rate and other charges on microfinance loans, but the limit would not be decided by the regulator.