The Reserve Bank of India (RBI) has imposed a monetary penalty of ₹6.20 lakh on Chennai-based non-banking financial company (NBFC) Five-Star Business Finance Ltd for deficiencies in regulatory compliance.
The penalty relates to the company’s failure to implement a robust software system for effective identification and reporting of suspicious transactions. The central bank also flagged shortcomings in the company’s disclosure practices regarding risk-based pricing of loans.
RBI flags disclosure shortcomings
According to a stock exchange filing, RBI observed that Five-Star Business Finance did not adequately disclose its approach for risk gradation and the rationale behind charging different rates of interest to different categories of borrowers in application forms and sanction letters.
The regulator viewed these lapses as non-compliance with applicable regulatory requirements and imposed the penalty accordingly.
Company says no material impact
Responding to the RBI action, Five-Star Business Finance said it would take the necessary corrective measures to address the issues highlighted by the central bank.
The company further stated that the order does not have any material implication on its business operations or financial position.
FY26 remained a challenging year
Five-Star Business Finance said FY26 was among the most challenging years for the company as stress in the microfinance institution (MFI) and unsecured lending segments gradually impacted secured small-ticket loan portfolios as well.
The company, which primarily lends to small business owners and self-employed individuals, witnessed higher delinquency levels and non-performing assets (NPAs) during the financial year due to significant overlap with MFI borrowers.
However, management noted that corrective actions taken over the last few quarters have helped mitigate these challenges and improve portfolio performance.
Eyes return to growth trajectory
The lender said it is now positioned to return to a stronger growth path and is targeting assets under management (AUM) growth of around 20% in FY27 and beyond.
The company plans to achieve sustainable growth through disciplined credit underwriting, strong collections, proactive risk management and greater use of technology and artificial intelligence.
It also expects support from a diversified and cost-effective funding profile.
AUM grows 11% in FY26
Five-Star Business Finance reported assets under management of ₹13,225 crore as of March 31, 2026.
The AUM increased 11% year-on-year and 2% quarter-on-quarter, reflecting steady business expansion despite a challenging operating environment.
The company remains focused on balancing growth, asset quality and profitability as it navigates evolving conditions in the retail lending market