RBI bundles up microfinance firms within NBFCs

The Reserve Bank of India (RBI) on Friday said it was introducing micro-finance institutions (MFIs) as a new category of non-banking finance companies following the recommendations made by the Malegam Committee which submitted its report in January 2011.

The Malegam committee was constituted as a panel of the Reserve Bank of India as announced in the November 2010 policy to study issues and concerns of the MFI sector, which has been hurt by state legislation in Andhra Pradesh, its biggest market.

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The central bank said the NBFC-MFI would have to be a non-deposit taking NBFC having minimum net owned funds of Rs 5 crore with not less than 85 percent of its net assets being under “qualifying assets”.

The notification added that net assets would be total assets other than cash and bank balances and money market instruments while qualifying assets would mean loans satisfying certain criteria.

The central bank also said that an NBFC which does not qualify as an NBFC-MFI will not be allowed to extend loans in excess of 10 percent of its total assets to the microfinance sector.

All fresh NBFC-MFIs will have to maintain a capital adequacy ratio consisting of Tier 1 and Tier 11 Capital which should not be less than 15 percent of its aggregate risk weighted assets.

All NBFC-MFIs shall maintain an aggregate margin cap of not more than 12 percent and interest on individual loans will not exceed 26 percent per annum and calculated on a reducing balance basis, it said.

Reuters