The Reserve Bank of India is likely to set different credit limit for loans extended to rural and urban borrowers by micro finance companies, while recommending a 24% interest rate cap on such loans.
An announcement to this effect is expected to be made by the central bank in its annual credit policy for 2011-12 tomorrow, sources said.
In January this year, a Reserve Bank Committee, headed by Y H Malegam, had suggested a cap on the interest rates charged by micro finance institutions (MFIs) at 24% and also limiting the total loan cap to an individual at Rs 25,000.
Sources said after extensive discussion with the stakeholders, the RBI has come to the view that the quantum of loan extended to customers should depend on different parameters.
As such, the individual loan cap as suggested by the Malegam Committee is likely to be tweaked and the RBI would announce different limits for rural and urban customers, sources said.
The MFIs were allegedly charging interest rates of over 30 per cent, which was along with their reported coercive recovery tactics.
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As regard the loan recovery period, the RBI is likely to allow MFIs to recover their dues on a monthly basis. However, the repayment tenure would be less than 12 months for loans below Rs 15,000 and less than two years for loans above Rs 15,000.
The RBI had constituted the Malegam panel to suggest steps for streamlining the micro finance sector which drew flak for overcharging and use of coercive methods to recover loans from small borrowers.
On repayment, it said, the borrowers be given the option of weekly or fortnightly or monthly return of the loan.
About the regulations of MFIs, the Malegam Committee, suggested that it should be done by the National Bank for Agriculture and Rural Development (NABARD) in close coordination with the RBI. At present RBI controls all profits for MFIs.
Micro finance -- the business of doling out small loans at high interest rates to poor who are unable to access bank credit -- has come under intense regulatory scrutiny, following an ordinance passed by the Andhra Pradesh government.