RBI Halts New Loans from Four Financial Companies
The Reserve Bank of India (RBI) has instructed four non-banking financial companies (NBFCs) to stop giving out new loans. This decision affects Asirvad Micro Finance Limited in Chennai, Arohan Financial Services Limited in Kolkata, DMI Finance Private Limited in New Delhi, and Navi Finserv Limited in Bengaluru. The RBI made this decision because these companies were charging too much interest and not following the rules.
Why the RBI Took Action
The RBI found that these companies were not following the rules about how much interest they can charge. They were also not following guidelines about how to recognize income and classify assets. This led to problems like “evergreening” of loans, where new loans are used to pay off old ones.
What Happens Next
While these companies cannot give out new loans, they can still manage their current customers and collect payments on existing loans. The RBI will lift the restrictions once the companies fix their issues and follow the rules better.
Doubts Revealed
RBI -: RBI stands for the Reserve Bank of India. It is the central bank of India, which means it controls the money supply and interest rates in the country to keep the economy stable.
Non-banking financial companies -: Non-banking financial companies, or NBFCs, are companies that provide financial services like loans and investments but are not banks. They do not have a full banking license but still play an important role in the financial system.
Interest rates -: Interest rates are the extra money you have to pay when you borrow money from someone, like a bank or a financial company. High interest rates mean you have to pay back a lot more than you borrowed.
Compliance -: Compliance means following the rules and regulations set by authorities like the RBI. If a company is not compliant, it means they are not following these rules properly.
Loan evergreening -: Loan evergreening is when a company gives a new loan to a borrower to help them pay off an old loan. This can make it look like the borrower is paying on time, even if they are not.
