MUMBAI, Aug 4:
The Reserve Bank of India (RBI) has offered relief to stressed microfinance companies, especially those in Andhra Pradesh, by relaxing provisioning norms and removing the 26 per cent cap on their lending rates.
The move comes almost a month after RBI Governor D Subbarao hinted the banking regulator might relax a few stringent norms pertaining to net worth, capital adequacy and provisioning to revive the ailing microfinance sector.
RBI said the provisioning for the Andhra Pradesh loan portfolio
would now be notionally reckoned as part of micro lenders’ net worth and this recognition would be progressively reduced equally over five years, till March 2017. This would ensure despite provisioning for Andhra Pradesh loan portfolios, which are non-performing for nearly two years now, microfinance companies would be able to maintain healthy capital adequacy, as their net worth would not be eroded. Microfinance companies would have to maintain a capital adequacy ratio of 15 per cent.
In a surprising move, RBI also removed the cap on micro lenders’ lending rates. To allow for operational flexibility, non-banking financial company- MFIs would ensure the average interest rate on loans during a financial year does not exceed the average borrowing cost during that financial year plus the margin, within the prescribed cap. Moreover, while the rate of interest on individual loans may exceed 26 per cent, the maximum variance permitted for individual loans between the minimum and maximum interest rates cannot exceed four per cent, RBI said.
The average interest paid on borrowings and charged by microfinance institutions has to be calculated on average monthly balances of outstanding borrowings and loan portfolios, respectively, instead of average fortnightly balances mentioned earlier.
RBI has now removed the interest cap and we welcome this move. It will provide microfinance companies the much needed operational
flexibility, said Mathew Titus, executive director of Sa-Dhan, one
of the industry bodies for micro lenders.
The margin cap, which was earlier fixed at 12 per cent, has now
been fixed at 10 per cent for large micro-lenders and retained at 12 per cent for other microfinance companies.
“Our dialogue with RBI has been on for many months and they have constructively addressed most of the issues, which we had raised. A happy day indeed for the industry,” said Alok Prasad, chief executive of Micro Finance Institutions Network, another industry body for micro lenders.
Among other relaxations provided by RBI, the norms pertaining to ‘qualifying asset criteria’ would be applicable on assets that have been originated from January one.
The central bank has also modified its norms on minimum net worth and said microfinance companies need to have net owned funds of Rs three crore by March 2013, instead of Rs five crore. Micro lenders, however, have to increase their net worth to Rs five crore from next financial year.
“These are very good guidelines and provide the much needed clarity the industry was looking for. We hope with these relaxations banks will resume lending to microfinance companies,” said Kishore Kumar Puli, chief executive of Trident Microfin.
(UNI)
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