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RBI steps on MFI loans likely to provide liquidity: govt

RBI steps on MFI loans likely to provide liquidity: govt
PTI
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First Published: Tue, Feb 22 2011. 06 23 PM IST
Updated: Tue, Feb 22 2011. 06 23 PM IST
New Delhi: The government on Tuesday said RBI measures to restructure bank loans to MFIs are likely to impart liquidity support to these institutions.
“In January 2011, RBI extended the special regulatory asset classification benefit to restructured micro-finance institutions (MFI) accounts, which are standard at the time of restructuring even if they are not fully secured,” minister of state for finance Namo Narain Meena said.
These measures would also facilitate them in ‘holding on´ operations for some time till measures are taken to bring about long-term and structural changes in the financing of MFIs, Meena said in a written reply in the Rajya Sabha.
The relaxation was granted as a temporary measure and would be applicable to standard MFI accounts restructured by banks up to 31 March 2011, he added.
As bank loans to MFIs are mostly unsecured, the Indian Banks Association (IBA) had requested Reserve Bank of India (RBI) in December 2010 to relax its restructuring guidelines for the MFI sector.
Earlier, the Malegam panel constituted by the apex bank, said in its report that loans extended by MFIs should be capped at an interest rate of 24%.
The committee, headed by RBI’s central board director Y. H. Malegam, also suggested small loan ceiling to Rs25,000 and creation of a separate category of non-banking financial companies (NBFC-MFI) for the MFI sector.
Meanwhile, sensing foul-play in the launch of new products like loan for men and interest-free loans by MFIs, the Andhra Pradesh government is planning to issue a notification to bring these products under the purview of the new Microfinance Regulation Act.
Microfianance lenders have been under scrutiny in Andhra Pradesh, their biggest market in India, after reports of suicides by borrowers came to light following their inability to pay back MFI loans taken at exorbitant interest rates.
It was apparently the coercive methods of MFIs that led to the suicide of a large number of victims in various districts of the state.
Bank funding for microfinance sector has dried up to a great extent ever since the Andhra Pradesh government issued an ordinance to curb the high interest rates and coercive recovery practices of MFIs.
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First Published: Tue, Feb 22 2011. 06 23 PM IST
More Topics: RBI | MFI | Loans | Microfinance | Namo Narain Meena |