India: The Reserve Bank of India Starts a New Lender Clan
Mumbai, India, December, 03 2011 -
The Reserve Bank of India (RBI) has put out guidelines for a new category of non-banking finance companies (NBFCs), which would be involved only in micro lending. The microfinance industry believes the guidelines will bring in more transparency.
NBFCs which have minimum net owned funds of up to `5 crore and over 85% of their net assets in the nature of ‘qualifying assets’ can be put under this category, the central bank said on its website.
The central bank defines qualifying assets as loans given to borrowers in rural areas with annual income not exceeding Rs60,000 or to borrowers in urban and semi-urban areas with annual income not exceeding Rs120,000.
These loans shall not exceed Rs35,000 in the first cycle and Rs50,000 in subsequent cycles and will have a tenure of not less than 24 months for loans in excess of Rs15,000. The total indebtedness of a borrower shall not exceed Rs50,000, the apex bank said.
Any NBFC which does not qualify under this category shall not lend to the microfinance sector exceeding 10% of its total assets.
With the addition of this new category of NBFC-MFIs, the total number of NBFC categories add up to seven.
The microfinance industry believes the guidelines will bring in more transparency.
“As such, 90% of the microfinance lenders fall under the NBFC bracket, while non-government organisations add up to 10%,” said Alok Prasad, chief executive officer, Micro Finance Institutions Network.
“RBI has fully taken into account the Malegam Committee report and come up with these guidelines,” said Prasad.
According to the central bank, interest on individual loans shall not exceed 26% per annum, while all NBFC-MFIs shall maintain an aggregate margin cap of not more than 12%.
All new NBFC-MFIs shall maintain a capital adequacy ratio consisting of Tier I and Tier II Capital of not less than 15% of its aggregate risk weighted assets. The total of Tier II Capital at any point of time shall not exceed 100% of Tier I Capital, RBI said.