RBI Penalises Muthoot Finance and Five Other NBFCs
Why in the news
The central bank levied monetary penalties on six non-bank lenders and finance companies for breaching different regulatory directions.
Penalty table
| Company | Fine | Lapse |
|---|---|---|
| Avail Financial Services | ₹6.20 lakh | MD sat on boards of two other Middle Layer NBFCs; went past the single-borrower exposure cap |
| Muthoot Finance | ₹5.80 lakh | No regular review of account risk categories; lacked strong software for flagging suspicious transactions |
| Satya MicroCapital | ₹3.10 lakh | Did not classify some restructured accounts as NPAs |
| PAN Emami Cosmed | ₹3.10 lakh | Lent beyond the cap for one borrower group |
| Dhani Loans and Services | ₹2.70 lakh | Left some loan accounts unclassified as NPAs |
| Muthoot Vehicle & Asset Finance | ₹2.70 lakh | Skipped review of customer risk grading (KYC) |
Rules breached
- Both Muthoot entities: Master Direction on KYC, 2016, which wants risk categorisation reviewed at least every six months.
- Satya MicroCapital and Dhani: IRAC norms on asset classification and provisioning.
- Avail and PAN Emami: exposure limits under the Scale-Based Regulation Master Direction for NBFCs, 2023.
- Penal power: RBI Act, 1934 (Sections 58G(1)(b) and 58B(5)).
Key concepts
- NBFC: lends or invests but cannot take demand deposits or draw cheques on itself; RBI-regulated.
- Scale-Based Regulation: 2022 framework with Base, Middle, Upper and Top layers; higher layers face tighter rules.
- NPA: loan overdue for 90 days or more.
- Exposure limit: ceiling on credit given to a single borrower or linked group, curbing concentration risk.
Exam angle
- Penal section for NBFCs: 58G of the RBI Act, 1934.
- NBFC layers: Base, Middle, Upper, Top.
- KYC review frequency: at least once in six months.