RBI relaxes norms to enable banks to support MFIs

RBI relaxes norms to enable banks to support MFIs

Mumbai: Reserve Bank of India (RBI) on Wednesday relaxed the debt restructuring norms for the microfinance sector to enable banks to provide liquidity support to the crisis-ridden Micro Finance Institutions (MFIs).

Attributing the current problems of the MFI sector to external factors the RBI said, the temporary measures being announced by the central bank would help in providing liquidity support to the MFIs.

The bank said it would facilitate operations till Malegam Committee submitted its report and measures are taken to bring about long term and structural changes in the functioning of MFIs.

Under the new norms, which will remain effective till 31 March, 2011, banks would be allowed to treat the advances to MFIs as good assets even if such loans are not fully secured. The decision would allow banks to restructure loans provided to the MFIs without much difficulty.

The decision follow a meeting called by the RBI last month to assess the problem of the microfinance sector in Andhra Pradesh and other states and also to work out interim measures to deal with the situation.

In order to prevent the problem from fanning out to states other than Andhra, the Indian Banks’ Association (IBA) urged the RBI to relax the debt restructuring guidelines for the MFI sector.

The problems in the microfinance sector erupted after the Andhra Government imposed restrictions on activities of the MFIs following spate of suicide by harried borrowers.