Navi Finserv Reduces Loan Interest Rates to 26% After RBI Restrictions

Sachin Bansal-led Navi Finserv took immediate steps to address concerns raised by the Reserve Bank of India (RBI), following the October 18 supervisory restriction that suspended its lending operations starting October 21. 

In response, Navi’s board decided on October 29 to reduce its maximum personal loan interest rate from 35% to 26%, effective November 8. This adjustment aligns with the companys commitments to the RBI and allowed it to resume lending operations by December 2 ending the restriction in under 45 days.

Previously, Navi bundled flat interest rates with fees and charges, resulting in an annual percentage rate (APR) ranging from 36% to 45%. The new policy separates interest rates from other charges such as documentation and processing fees reducing the overall cost of borrowing while enhancing the transparency. 

This change comes amidst broader regulatory scrutiny of high interest unsecured lending practices.

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RBI has repeatedly cautioned financial institutions about the stress in unsecured loans below ₹50,000 urging lenders to limit exposure. Navi, which primarily focuses on loans between ₹50,000 and ₹1,00,000 stated that it evaluates loans individually rather than imposing blanket restrictions. Loans below ₹50,000 represent a minor share of Navi’s total assets under management (AUM).

The company reported an increase in non-performing assets (NPA) to over 5% in FY24 from 2.8% in FY23, prompting an impairment provision of ₹490 crore. However, asset quality has improved recently due to stricter borrower selection, robust underwriting and improved collections. Crisil highlighted these improvements in October 2024 attributing them to Navi’s proactive measures.

The revised 26% interest rate serves as a ceiling, with borrowers of higher creditworthiness eligible for lower rates. Navi anticipates attracting better-quality borrowers while further reducing NPAs. Competitive rates should enhance conversions of quality customers, a source close to Navi explained. This strategic shift aims to balance growth and risk, solidifying Navi’s position in the competitive lending market.

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