RBI offers breather to MFIs

Extends deadline for implementing new provisioning norms by a year

Microfinance institutions (MFIs) in Andhra Pradesh can now breathe a sigh of relief. The deadline for new provisioning and asset classification norms, which threatened their existence, has been extended by a year. This allows non-banking finance company microfinance institutions (NBFC-MFIs) more time to get their act back together.

“Taking into account the difficulties faced by the MFI sector and the representation received from these, it has been decided to defer the implementation of asset classification and provisioning norms for NBFC-MFIs to April 1, 2013,” the Reserve Bank of India (RBI) said.

On December 2, 2011, the banking regulator had created a new category of finance companies — NBFC-MFIs — and released operational guidelines for these firms. These norms, RBI had said, would be effective from April 1, 2012.

According to the new guidelines, NBFC-MFIs must make 100 per cent provisions on aggregate loan installments overdue for 180 days or more. So far, MFIs maintained 10 per cent provisions on loan amounts for which the repayment was due for more than 180 days.

For Andhra Pradesh-based micro-lenders, it was impossible to make such provisions, as almost all their receivables were due for over 180 days, following a crisis in the sector. The state government had curbed micro-lending by private players in the state, and this had plunged the sector into a crisis and affected loan recoveries of local MFIs.

Industry players said if they made provisions, it would wipe out their net worth. In other words, these firms would not be able to meet the guidelines relating to minimum net worth of Rs 5 crore and a capital adequacy ratio of at least 15 per cent.

The microfinance companies, through their representative body Micro Finance Institutions Network, had sought more time from RBI to meet the provisioning norms. “It is a huge relief for us. If RBI did not allow us more time, we would have to close our operations,” said the chief executive of a Hyderabad-based micro-lender.

RBI, however, said the NBFC-MFIs must meet all other guidelines mandated by the regulator from April 1, 2012.