MFI stress not a big concern at a system level, says Swaminathan J

The apex bank has asked lenders to strengthen their underwriting standards and collection efforts to limit the conversion of stress into Non-Performing Assets (NPAs)

The Reserve Bank of India (RBI’s) Deputy Governor Swaminathan J on Friday said that stress in microfinance (MFI) is still not a big concern at a system level despite the increase in slippages witnessed in the sector. The apex bank has asked the lenders to strengthen their underwriting standards and collection efforts to limit the conversion of stress into Non-Performing Assets (NPAs). 

 

“The Governor has said that in these segments where enhanced slippage is being witnessed, we have requested the banks and NBFCs to strengthen their underwriting standards and to step up their collection efforts to ensure that the stress does not translate into NPAs. So, on the same theme, we continue to engage with the entities wherever we see any outlier behaviour. At the system level, it is still not a big concern,” the Deputy Governor said during a post-MPC press meet.

 

In the October MPC, the Governor had said that NBFCs, including MFIs and HFCs, should follow sustainable business goals focused on compliance, a strong risk management framework, strict adherence to the fair practices code, and a sincere approach to customer grievances, while also warning that the RBI would not hesitate to take appropriate action, if necessary.

 

The Deputy Governor also said, “About 20-30 basis points uptick in stress is something which we are confident the entities will be able to handle. In certain entities where these particular numbers are outliers, we deal with them on a bilateral basis, examining the steps they are taking to ensure that the stress is not widespread.”

 

Further, he also said that through the Self-Regulatory Organization (SRO), they have “enough levers” in the MFI space, and they are taking adequate steps to sensitise their members to adhere to the prudential guidelines of the RBI and ensure that household income assessment and prepayment obligations towards net monthly income, etc., are strictly followed.

 

Recently, the Microfinance Industry Network (MFIN), the SRO for MFIs, reduced the number of micro-lenders per client from the existing four to three. The new norms will be effective from January 2025. It has also restricted lenders from lending to delinquent clients, defined as those with overdue payments of more than 60 days and an outstanding amount exceeding Rs 3,000, from the previous 90 days. This comes months after the SRO capped microfinance loans to a client at Rs 2 lakh.  Collateral-free agri loans limit increased to Rs 2 lakh 

Reserve Bank of India has hiked the limit for the collateral-free agriculture loans by banks from Rs 1.6 lakh to Rs 2 lakh in view of the overall inflation and rise in agricultural input costs. This will enhance coverage of small and marginal farmers in the formal credit system.

  This limit was enhanced from Rs 1 lakh, set in the year 2010 to Rs 1.6 lakh in the year 2019. The agricultural growth is supported by healthy kharif crop production, higher reservoir levels and better rabi sowing, RBI governor Shaktikanta Das said in his statement along with policy. 

The credit to agriculture and allied activities registered a growth of 15.5 per cent (year-on-year) in October 2024, compared with 17.4 per cent seen in the same month of last year, RBI data showed.