The Reserve Bank of India is likely to relax some of its tough provisioning norms that it laid out for microfinance institutions in a notification that led to a creation of a separate category of Non-Banking Finance Institutions (NBFC-MFI) in December last year. The revised guidelines, which will offer a breather to MFIs are expected in couple of days, said people familiar with the matter.
According to the apex bank’s December notification, MFIs have to provision 100 per cent of the aggregate loan instalments which are overdue for 180 days or more, while the provisioning for loan instalments which are overdue for more than 90 days and less than 180 days is 50 per cent.
However, the MFIs has requested for some relaxation in the provisioning norms for the institutions that has exposure to Andhra Pradesh, where most of them faced a huge hit after the state government curtailed coercive practices by microfinance institutions. According to analyst’s estimates, the collection rates in Andhra have dropped from 99 per cent to 10 per cent. The MFIs there were required to set aside amounts equal to the full extent of the overdue loans in the southern state, which would result in the erosion of funds for further lending.
“ We have not been able to grow our loan portfolio ever since the crisis in Andhra Pradesh, which had eroded our balance sheet to Rs 125 crore, one fifth of its size two years back,’’ Vijay Mahajan, Chairman, BASIX said at a conference by Microfinance Institutions Network and Maharashtra Economic Development Council. Vijay Bhaskar, Executive Director, RBI said, “some prudential norms will be relaxed’’.
Apart from the provisioning, the RBI is expected to give more time for the MFIs to comply with directions such as multiple-lending and loan tenure at a prospective date.
Under the new norms, MFIs should have not less than 85 per cent of its net assets in the nature of “qualifying assets.” An asset will be ‘qualified’ if the loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding Rs. 60,000 or urban and semi-urban household income not exceeding Rs. 1,20,000. Total indebtedness of the borrower does not exceed Rs. 50,000 along with a few more criterias.
Failure to comply with the norms will deprive them of the loans from banks, said analysts. Even if the prudential norms are relaxed, the banks are not willing to lend money to the institutions in Andhra, analysts said.
However, Alok Prasad, CEO, MFIN said that the MFIs in non-AP states are expected to grow its loan book by over 30 per cent and most institutions are already well-capitalised to cater to demand.
(Edited by Prem Udayabhanu)