Indian Banking - Motilal Oswal

INDIAN BANKING: RBI releases sub-committee report on microfinance sector; Also provides temporary relief on restructuring

RBI has released a report by the Y H Malegam committee, which was formed in October 2010 to study the issues and concerns in microfinance sector.

Creation of a separate category of NBFCs operating in the microfinance sector to be designated as NBFC-MFIs

NBFCs which do not qualify as NBFC-MFIs should not be permitted to give loans to the microfinance sector, in excess of 10% of its total assets.

Interest chargeable to the borrower should have an average "margin cap" of 10% for MFIs having a loan portfolio of Rs1b and of 12% for smaller MFIs.

NBFC-MFIs should be exempted from the provisions of the Money-Lending Acts, as committee is recommending interest margin caps and increased regulation.

Creation of separate NBFC status and RBI as a regulator for MFI is a welcome move as it will reduce the risk of political interference in the functioning of MFIs. Priority-sector status to MFIs will provide them regular and cheaper access to bank funds. In a separate move RBI today has allowed banks to restructure the loans given to MFI considering the problem faced by the sector currently, which will reduce the asset quality risk for the banks in the near term.

Source : Equity Bulls

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