The Reserve Bank of India (RBI) is likely to relax some of the norms pertaining to microfinance institutions’ net worth, capital adequacy and provisioning needs.
“The roll-out of the new regulatory regime has run into some bottlenecks. Some MFIs are unable to comply with the qualifying asset criterion for registering as non-banking finance company-MFIs and, therefore, banks are reluctant to make fresh loans to them, as such loans do not qualify as priority sector lending,” RBI governor D Subbarao said at an event organised by Indian Overseas Bank.
“Small MFIs are also not able to meet the Rs 5 crore entry point capital to be eligible to register as an NBFC-MFI. In particular, Andhra Pradesh-based MFIs, saddled with huge losses, large NPAs (non-performing assets) and eroded capital, are facing an especially acute problem in complying with the capital and provisioning norms. RBI is working on resolving these issues, so that MFI operations can get back on track,” he added.
On December 2, 2011, the NBFC-MFI was created as a new category of finance company, and told to ensure 100 per cent provisioning on aggregate loan instalments overdue for 180 days or more. MFIs were so far maintaining 10 per cent provisioning on the loan amount where repayment was due to this extent. These norms were supposed to be effective from April 1. In March, the banking regulator had extended the deadline for new provisioning and asset classification norms by a year, to allow the troubled sector more time to get their house back in order. These rules, RBI said, would be effective from April 1, 2013.
Subbarao, however, noted that investors’ sentiment towards the sector had improved in recent months, with some MFIs able to raise money from venture capital funds. Banks have been found to discriminate between their customers while pricing loans, as the process lacked transparency, Subbarao said. In particular, the spread levied on customers differed widely, even if the risk profile was the same.
Typically, banks’ spread depends on the nature of loans, over the benchmark lending rate or the base rate. RBI mandate banks to link all loans to the base rate, except for a specified few.
“One problem that has persisted even after the introduction of the base rate system relates to the lack of transparency in the customer-specific spread charged to a borrower over the base rate. There have been complaints that the spread charged to a customer has been revised upwards without any apparent change in her risk profile. Also, where floating rate loans are concerned, existing customers have been disadvantaged vis-à-vis new customers with similar credit ratings, resulting in complaints about discrimination,” Subbarao said.
RBI has constituted a group to determine the principles that should govern a proper, transparent and non-discriminatory pricing of credit. Headed by deputy governor Anand Sinha, it is to give a report by August. Despite having freed the interest rate on savings bank deposits, large banks are not responding and RBI expects more activeness. “(We) look forward to more active play in the savings bank segment, with banks coming out with some customer-friendly innovations, especially aimed at attracting lower income households, presently outside the banking sector,” Subbarao said.
He noted seven relatively small private banks had raised their savings bank rates. This “expectedly” improved their market share in the segment, he said. RBI deregulated these rates in October.
Since then, YES Bank, Kotak Mahindra, IndusInd, Karnataka Bank, Ratnakar Bank and Saraswat Bank had raised their savings bank rate to 5.5-7 per cent, depending on the size of the deposit.
RBI outreach programme to take banking to villages has not seen any major impact, Subbarao said at an event. There have been complaints that banking correspondents have not been trained.