RBI Revokes Registration of Margdarshak Financial Services for Payment Defaults
The Reserve Bank of India (RBI) has recently taken a significant step by cancelling the registration of Margdarshak Financial Services Ltd, a Lucknow-based Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI). This decision was made due to the company’s high net Non-Performing Assets (NPAs) and defaults on repayment to lenders. As of March 31, 2021, Margdarshak Financial Services Ltd failed to maintain the minimum regulatory net owned fund of Rs 5 crore and a minimum capital adequacy ratio of 15 per cent, which are stipulated requirements for NBFC-MFIs.
According to the central bank, the company faced cash flow issues and defaulted on repayment of a substantial amount totaling Rs 49.27 crore to its lenders. The auditors highlighted significant concerns, noting losses of Rs 187 crore and high net NPAs amounting to Rs 82.37 crore, raising doubts about the company’s ability to continue as a going concern. Additionally, there were delays in finalizing the balance sheet for the fiscal year ending March 31, 2021, with the completion only achieved after nearly seven months, on October 22, 2021.
Challenges Faced by Margdarshak Financial Services
The RBI also pointed out considerable delays in the submission of supervisory returns by Margdarshak Financial Services. Furthermore, there were net cumulative negative mismatches in various maturity buckets of 1-30 days, exceeding the prescribed threshold limits, indicating a lack of proper risk management practices within the company. Despite repeated requests, the company failed to provide the required information to the bank and refused to cooperate during on-site inspections, including the production of books of accounts and other crucial documents.
It is evident that Margdarshak Financial Services was grappling with a myriad of issues, ranging from financial mismanagement to non-compliance with regulatory norms. The revocation of its registration by the RBI serves as a stark reminder of the consequences that institutions face when they fail to uphold the necessary standards of governance and financial discipline.
RBI Imposes Penalties on NDX P2P Pvt Ltd and Innofin Solutions Pvt Ltd
In a separate development, the RBI also imposed penalties on NDX P2P Pvt Ltd and Innofin Solutions Pvt Ltd for non-compliance with certain provisions related to peer-to-peer lending platforms and guidelines on digital lending. Innofin Solutions Pvt Ltd, also known as “LenDen Club,” incurred a penalty of Rs 1.99 crore, while NDX P2P Pvt Ltd, trading as ‘LiquiLoans,’ faced a penalty of Rs 1.92 crore.
These penalties highlight the central bank’s commitment to ensuring compliance within the digital lending space and holding entities accountable for any violations of regulatory guidelines. By penalizing NDX P2P Pvt Ltd and Innofin Solutions Pvt Ltd, the RBI is sending a strong message to the industry that adherence to regulations and transparency in operations are non-negotiable aspects of conducting business in the financial sector.
Impact on the Financial Sector
The RBI’s actions against Margdarshak Financial Services, NDX P2P Pvt Ltd, and Innofin Solutions Pvt Ltd underscore the regulator’s proactive stance in maintaining the stability and integrity of the financial sector. By cracking down on entities that deviate from regulatory norms and exhibit financial irregularities, the RBI is safeguarding the interests of depositors, lenders, and investors.
These developments also serve as a wake-up call for other financial institutions operating in the NBFC-MFI and digital lending segments to reassess their risk management practices, compliance frameworks, and overall governance structures. The stringent penalties imposed by the RBI should serve as a deterrent to entities engaging in non-compliant activities and encourage a culture of responsibility and accountability within the industry.
In conclusion, the RBI’s decision to cancel the registration of Margdarshak Financial Services and impose penalties on NDX P2P Pvt Ltd and Innofin Solutions Pvt Ltd underscores the importance of regulatory compliance and financial discipline in the Indian financial sector. As stakeholders navigate the evolving landscape of digital lending and microfinance, adherence to regulatory guidelines and best practices will be crucial in fostering a sustainable and resilient financial ecosystem.