Provisioning burden relief likely for MFIs

The Reserve Bank of India (RBI) might ease some norms for microfinance companies to ease the burden of provisioning in the Andhra Pradesh loan portfolio, said a senior RBI official.

Various microfinance institution (MFI) associations had sought changes in the guidelines issued in December 2011. A circular incorporating the revision would be issued in the next few days, Vijay Bhaskar, executive director, RBI, said, while addressing a microfinance seminar organised by the Microfinance Institutions Network (MFIN) and the Maharashtra Economic Development Council. Bhaskar, however, didn’t specify the details.

MFIN chief executive Alok Prasad said the association’s key demands pertained to relaxations in provisioning for bad loans in MFI portfolios in Andhra Pradesh. The qualifying norms for treating non-banking financial companies should be applicable from a future date, not with retrospective effect, he said.

The MFI sector has been going through a difficult phase after the Andhra Pradesh government imposed severe restrictions (through an ordinance) on operations, including recoveries by microlenders in the state. Hit by recovery woes in Andhra Pradesh, the loan portfolios of MFIs shrunk 15 per cent to Rs 15,443 crore in 2011-12. For MFIs operating in Andhra Pradesh, the loan portfolio declined 38 per cent to Rs 7,060 crore at the end of March, compared with Rs 11,314 crore a year ago.

MFIs in the state wrote-off about Rs 1,799 crore of loans in the past year, according to MFIN data.