Introduces new category of NBFC-MFI.
The Reserve Bank of India (RBI) on Friday formally brought microfinance institutions (MFI) under its direct regulation by classifying these as a new category of non-banking financial company (NBFC).
The move follows the recommendations of the Malegam committee report of January and is expected to clear any ambiguity on who has responsibility for monitoring the sector.
| IN A NUTSHELL: NBFC-MFI GUIDELINES |
| CAPITAL |
| * NBFC-MFIs to have minimum net owned funds of Rs 5 crore (Rs 2 crore for north eastern regions) |
| * CAR at 15 per cent (12 per cent if 25 per cent exposure in Andhra Pradesh) |
| LENDING NORMS |
| * More than 2 NBFC-MFIs can’t lend to the same borrower |
| * Borrower can not be member of more than one group |
| * Frequency of installments to be decided by borrower |
| * Higher annual income cut-off for households in urban and semi-urban areas |
| * Margin cap at 12 per cent |
| * Interest rate cap at 26 per cent |
| ASSET QUALITY |
| * Loans due over 90 days to be classified as bad debts |
| * Provisioning norms for bad assets |
| RECOVERY |
| * Code of conduct and training for recovery staff |
| COMPLIANCE |
| * Existing NBFCs to comply by April 1 2012 to qualify as an NBFC-MFI |
| * Non NBFC-MFI not to lend more than 10 per cent of total assets to the sector |
The guidelines say NBFC-MFIs will be non-deposit taking finance companies having minimum net owned funds of Rs 5 crore, with not less than 85 per cent of net assets in the nature of 'qualifying assets'. RBI said net assets would be total assets other than cash and bank balances and money market instruments, while loans given to poor households would be considered qualifying assets, subject to certain conditions.
NBFCs that do not qualify as NBFC-MFIs will not be allowed to lend in excess of 10 per cent of total assets to the sector. The minimum capital adequacy ratio (CAR) of NBFC-MFIs has been kept at 15 per cent but RBI has also offered some relief to MFIs with significant exposure in Andhra Pradesh. The capital adequacy ratio for NBFC-MFIs with more than 25 per cent of loan portfolio in Andhra would be 12 per cent for the current financial year only. These companies have to increase their CAR to 15 per cent from the next financial year.
"The aggregate loan provision to be maintained by NBFC-MFIs at any point of time shall not be less than the higher of one per cent of the outstanding loan portfolio or 50 per cent of the aggregate loan installments which are overdue for more than 90 days and less than 180 days, and 100 per cent of the aggregate loan installments which are overdue for 180 days or more," RBI said.
A borrower of the NBFC-MFI cannot be a member of more than one self-help group or joint liability group and not more than two NBFC-MFIs can lend to the same borrower.
The margin cap for NBFC-MFIs is fixed at 12 per cent. The central bank said interest on individual loans must not exceed 26 per cent per annum and should be calculated on a reducing balance basis. Processing charges have also been capped at one per cent of the gross loan amount but can be excluded from margin cap and interest cap.
"There shall be only three components in the pricing of the loan – the interest charge, the processing charge and the insurance premium (which includes the administrative charges in respect thereof)," RBI said.
Bank loans to NBFC-MFIs can be classified as priority sector loans, RBI said.
