The Reserve Bank of India (RBI) has barred four non-banking financial companies (NBFCs) from sanctioning and disbursing loans due to "usurious" pricing and breaching regulatory norms.

The ban on Asirvad Micro Finance, Arohan Financial Services, DMI Finance and Navi Finserv is effective from close of business on 21 October, the RBI said.

The companies' pricing policies in terms of their weighted average lending rate (WALR) and the interest spread charged over their cost of funds were found to be excessive and did not adhere to regulations, the RBI said.

 "In addition to usurious pricing, these NBFCs were variously found to be in non-adherence with the regulatory guidelines on assessment of household income and consideration of existing/ proposed monthly repayment obligations in respect of their microfinance loans," the RBI said.

It also noted deviations in terms of income recognition & asset classification (IR&AC) norms, which led to evergreening of loans, as well as how the firms managed their gold loan portfolio, handled mandated disclosures on interest rates and fees and outsourced core financial services, among other things.

The companies continued with these practices despite the RBI asking them, over the last few months, to use their regulatory freedom responsibly and ensure fair, reasonable and transparent pricing, especially for small-value loans, the regulator said.

The restrictions do not stop these companies from servicing their existing customers and carrying out collection and recovery activities, the RBI said.

The regulator said it would review its decision once the companies confirmed they had taken remedial action.