Microfinance institutions (MFIs) in the country can breathe easy as the Reserve Bank of India (RBI) is likely to relax some of the norms pertaining to their net worth, capital adequacy and provisioning needs. The relaxations are expected to help troubled micro-lenders emerge out of the crisis.
"The rollout of the new regulatory regime has run into some bottlenecks. Some MFIs are unable to comply with the qualifying asset criterion for registering as NBFC-MFI, and therefore banks are reluctant to make fresh loans to them as such loans do not qualify as priority sector lending," RBI governor D Subbarao said at an event organised by Indian Overseas Bank to celebrate their platinum jubilee here today.
"Small MFIs are also not able to meet the Rs 5 crore entry point capital to be eligible to register as NBFC-MFI. In particular, the Andhra Pradesh-based MFIs, saddled with huge losses, large NPAs (non-performing assets) and eroded capital, are facing an especially acute problem in complying with the capital and provisioning norms. RBI is working on resolving these issues so that MFI operations can get back on track," he added.
On December 2, 2011 the banking regulator created a new category of finance company, NBFC-MFI, and released operational guidelines for these firms. As per the new guidelines, NBFC-MFIs must make 100 per cent provisions on aggregate loan installments that are overdue for 180 days or more. MFIs were so far maintaining 10 per cent provisions on the loan amount, where the repayment is due for more than 180 days.
For Andhra Pradesh-based micro-lenders it was impossible to make such provisions as almost all their receivables were due for over 180 days following the crisis in the sector. The Andhra Pradesh government had curbed micro-lending by private players in the state that plunged the sector into a crisis and affected loan recoveries of local MFIs.
These norms were supposed to be effective from April 1, 2012.
Industry players said if they had to make these provisions it would wipe out their net worth. In other words, these firms would not be able to meet the guidelines relating to minimum net worth of Rs 5 crore and capital adequacy ratio of at least 15 per cent.
In March, 2012 the banking regulator had extended the deadline for new provisioning and asset classification norms by one year to allow MFIs more time to get their house back in order. These rules, RBI said, will be effective from April 1, 2013.
The micro-lenders through their industry body Micro Finance Institutions Network (MFIN) had made representations to RBI seeking more relaxations.
"Delaying the deadline by one year did not really solve the problem. We will face the same issues next April. Hence, representations were made to RBI. We are yet to get a feedback from them. So, it is good to know that they are considering our proposals," said a chief executive of a Hyderabad-based micro-lender.
Subbarao, however, noted that investors' sentiment towards the MFI sector has improved in the past few months as some of the micro-lenders have been able to raise money from venture capital funds.
