RBI hopes banks lending to MFIs will be smooth soon

The Reserve Bank today expressed confidence that banks would start providing funds to MFIs once guidelines for regulating the sector are put in place.

Regretting that banks have not yet started lending to micro finance institutions (MFIs), RBI Deputy Governor K C Chakrabarty said, "We have held discussions with banks recently."

"Still banks have not started lending (to the MFI sector)," he said, adding that "once the restructuring guidelines are framed ... Banks have promised that they will lend". He was talking to reporters on the sidelines of a summit here.

In its monetary policy last month, the Reserve Bank had said that those MFIs which charge up to 26% interest rates would be eligible for priority sector lending status.

Broadly accepting the recommendations of the Malegam Committee, the RBI has fixed the loan amount for an individual borrower at Rs 35,000 from an MFI. The expert panel had suggested the limit of Rs 25,000 with an interest rate cap of 24%.

Chakrabarty hinted that RBI guidelines on MFIs, expected shortly, would be in line with the norms announced in the monetary policy. "There will be no surprise in the final guidelines for MFIs," he said.

The sector, which is mostly active in Andhra Pradesh, came under cloud in October 2010 following reports of suicides by those trapped in debt paying high interest rates, often as high as 36%, to some MFIs.

When asked about the growing non-performing assets (NPAs) of the banking companies in India, Chakrabarty said, "If the NPAs are growing which the data suggests that they are, definitely banks are not managing it well." At present, the gross NPAs in the banking sector are around 3% of total total advances.