RBI to ease micro lending norms to stimulate microfinance industry

India’s central bank - the Reserve Bank of India (RBI) is contemplating the proposal of easing some of the rules relating to the country’s microfinance institutions’ (MFIs) net worth, capital adequacy and provisioning needs. At a time when the MFIs are facing difficult times, the relaxation of norms by RBI would provide a huge sigh of relief to the institutions dealing in micro-finance and also help them emerge out of the crisis.

Acknowledging that the setting up of new regulatory regime has run into some bottlenecks, RBI governor D Subbarao opined that the central bank is taking efforts to resolve various challenges faced by the MFIs and would soon bring MFI operations back on track. He cited that small MFIs were unable to meet the Rs 5 crore entry point capital to be eligible to register as non banking finance company (NBFC)-MFI, underlining the difficulties faced by them in complying with the qualifying asset criterion for registering as NBFC-MFI.

Subbarao highlighted that the loss making MFIs based in Andhra Pradesh, who are suffering from large non-performing assets (NPAs) and eroded capital, are reeling under acute problems in complying with the capital and provisioning norms. Therefore banks were reluctant to make fresh loans to them as such loans do not qualify for priority sector lending.

Though micro finance institutions have RBI as their regulator but there are apprehensions over whether the central bank has the means and ability to do so. RBI Governor revealed that the central government is bringing out a law to govern the MFI and has proposed RBI as the regulator however, concerns remain whether it have the set up to oversee small MFIs without affecting the quality of supervision.