Banks today asked the Reserve Bank of India (RBI) for preservation of priority sector status for the micro lending sector, irrespective of the individual conduct of borrowing microfinance institutions (MFIs).
"Bankers' main reservation is nothing should happen by which some act or conduct or misconduct of MFIs should result in the priority sector status being withdrawn," Indian Banks Association Chief Executive K Ramakrishnan told PTI here.
Top bankers, including Corporation Bank CMD Ramnath Pradeep, HDFC Bank MD Aditya Puri, Axis Bank CEO Shikha Sharma and Dhanlaxmi Bank CEO & MD Amitabh Chaturvedi, met RBI Deputy Governor KC Chakrabarty to voice their concerns regarding the recommendations of the Malegam Committee on MFIs, before they are ratified into guidelines on April 1.
Ramakrishnan said even though the Malegam Committee has suggested the continuance of priority sector status for loans to the MFI sector, there are some conditions wherein the status can be cancelled due to the misconduct of borrowing MFI like using coercion, charging higher interest rate, etc.
"If the MFIs don't do certain things vis-a-vis borrowers, don't penalise me in terms of regulation by taking out sector (from priority sector)," he said.
He added the RBI was appreciative of the reservations expressed by the bankers.
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Another banker said on the condition of anonymity the RBI is keen to implement the Malegam Committee recommendations from April 1 itself.
The banker said if the Reserve Bank becomes the single regulator for the MFI sector, "it will be a great positive".
All commercial banks are mandated to lend a certain amount to priority sectors, which mainly includes advances to boost the rural economy and encourage smaller enterprises.
As the MFIs lend to micro enterprises in rural areas, loans given to them are also qualified as priority sector lending.
The Malegam Committee was constituted after certain problems in the MFI sector which came to the fore after suicides by some borrowers of MFIs in the largest market of Andhra Pradesh, allegedly due to coercive tactics used by collection agents.
AP has since come out with a legislation to regulate the MFIs, while the RBI constituted the Malegam committee, which has given a slew of recommendations, including the suggestion to allow RBI to regulate the sector, capping maximum lending limit to an individual at Rs 25,000 and interest rates at 24% per annum.