MFIs getting back into the good books of banks

After nearly 10 months of squeeze, banks are now turning positive about lending to microfinance institutions (MFIs).

Some banks are actively processing loans applications of credit-starved MFIs which have been in the red since the promulgation of the Andhra Pradesh Microfinance (Regulation of Moneylending) Act in October last year.

Clarity on issues

“At present, we are examining about nine proposals for credit from MFIs. We don't see any big problem as there is clarity on this issue from the Reserve Bank of India,” Mr Nagesh Pydah, Chairman and Managing Director, Oriental Bank of Commerce, told Business Line.

After the RBI has accepted the recommendations of the Malegam committee report, including the categorisation of advances to MFIs as priority sector lending, things are apparently turning in favour of MFIs.

Mr M. Narendra, Chairman and Managing Director, Indian Overseas Bank, said his bank would `positively' see credit to MFIs, along with financing of the self-help groups through other channels, as part of the financial-inclusion efforts.

IDBI and Axis Bank, too, had announced that extension of credit lines to MFIs is now being considered.

The near-normal business of MFIs outside Andhra Pradesh is also helping MFIs to be back in the good books of banks.

“We never had a taboo on lending to MFIs. Some of those with operations outside Andhra Pradesh appear to be reporting normal business. Even in AP, things might improve going forward,” Mr Ramachandran, Chairman and Managing Director, Andhra Bank said at a recent press conference.

‘A positive shift'

As per the information from various banks, credit proposals of about Rs 1,600 crore to different MFIs are now being processed.

“Definitely, there is a positive shift. Things will improve once the draft MFI Bill of the Government translates into a reality,” Mr M. R. Rao, Chief Executive Officer, SKS Microfinance Ltd, said.