The Reserve Bank of India on Thursday doubled the limit for short-term loans extended by microfinance institutions (MFIs) in an effort to boost credit to the poor.
MFIs can now offer Rs 30,000 for loans with tenure of less than 24 months, the central bank said in a statement. As before, there will be no penalty if the loan is repaid before the due date, it added.
The move will likely benefit listed MFIs such as SKS Microfinance Ltd, among others. However, Parag Jariwala, vice president of institutional research at Religare Capital Markets, said it will have limited impact as borrowers can already take more than Rs 15,000 for a period higher than 24 months and repay before the due date without penalty.
The decision comes in the light of lower rates offered by MFIs given that the cost of capital has come down after the RBI cut interest rates this year.
The RBI and the government have also taken a number of other steps to boost credit to the poor. This includes revising the priority sector lending targets of banks and setting up of MUDRA Bank with a corpus of Rs 20,000 crore.
However, the measures haven’t helped check a decline in credit growth. Bank credit grew 9.23 per cent from a year earlier in October, below the 9.79 per cent number recorded for the previous month, according to RBI data released earlier this month.