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RBI Eases NBFC-MFI Norms

The Reserve Bank of India (RBI) on Friday relaxed some prudential norms governing the non-banking finance companies-micro finance institutions (NBFC-MFI) in the country. This was done in light of representations received by the central bank from the industry over difficulties in complying with the directions issued on December 2, 2011.

Under the new norms, the interest cap of 26% on NBFC-MFI has been removed. However, NBFC-MFIs will have to ensure that the average interest rate on loans during a financial year does not exceed the average borrowing cost during that financial year plus the margin. The cap on margins as defined by Malegam Committee may not exceed 10% for large MFIs (loans portfolios exceeding R100 crore) and 12% for the others.

Under the new norms, an NBFC-MFI must maintain net owned funds (NOF) at R3 crore by March 31, 2013, and at R5 crore by March 31, 2014. Under the previous norms, an NBFC-MFI would need to maintain NOF of R5 crore.

In view of the problems being faced by MFIs in Andhra Pradesh, many of them have had to provide sizeable amounts towards the non-performing assets in the state. However, for the calculation of capital adequacy ratio (CAR), the RBI has brought in some relaxation. Accordingly, the provisioning made towards Andhra Pradesh portfolio shall be notionally reckoned as part of NOF and there shall be progressive reduction in such recognition of the provisions for AP portfolio equally over a period of 5 years.

The old directives specified that NBFC-MFIs would be required to maintain not less than 85 % of their net assets as qualifying assets. In view of the problems being faced by NBFCs in complying with this criteria on account of their existing portfolio, RBI decided that only the assets originated on or after January 1, 2012, will have to comply with the qualifying assets criteria.

NBFC-MFIs were also required to ensure that the aggregate amount of loans given for income generation is not less than 75% of the total loans extended. However, now the RBI has relaxed this norm by stating that the income-generation activities should constitute 70% of the total loans of the MFIs and the remaining 30% can be for other purposes.

Financial Express, New Delhi, 04-08-2012

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