By 03 June, 2013

The Reserve Bank of India has decided to set the margin cap to 12 per cent for large microfinance institutions (MFIs) till March 31, 2014.

In December 2011, the central bank said that MFIs need to maintain an aggregate margin cap of not more than 12 per cent, irrespective of their size.

However, in its revised notification in August 2012, the RBI said that the cap on margins should not exceed 10 per cent for large MFIs (loans portfolios exceeding Rs 100 crore) and 12 per cent for others.

Following the margin cap, MFIs, especially large companies, approached the central bank for more time to comply with the norms. However, margin caps will be implemented as defined by YH Malegam Committee, with effect from April 1, 2014.

The move is expected to benefit large MFIs including PE-backed ones such as Janalakshmi Financial Services, Utkarsh Micro Finance, Satin Creditcare Network and Sonata Finance.

These MFIs, along with the smaller PE-backed players such as Saija Finance and Arohan Financial Services, were among the top companies who have registered the highest incremental loan growth. Accordingly, larger MFIs will be able to report higher net profit in FY13-14.

(Edited by Sanghamitra Mandal)

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