Money & Banking

Reserve Bank increases lending caps for micro finance institutions

Mumbai | Updated on October 04, 2019

With the aim to increase credit availability to lower income groups, the Reserve Bank on India, on Friday, raised the lending caps for micro finance institutions.

Household income limit

The household income limit for borrowers of NBFC-MFIs in rural areas will be hiked to ₹1.25 lakh from the current ₹1 lakh, while for urban and semi-urban areas it will be increased to ₹2 lakh from the current ₹1.6 lakh.

The RBI has also announced raising the lending limit to every eligible borrower to ₹1.25 lakh from the current ₹1 lakh.

“Taking into consideration the important role played by MFIs in delivering credit to those in the bottom of the economic pyramid and to enable them play their assigned role in a growing economy, it is proposed to revise these criteria,” the RBI said in its Statement on Developmental and Regulatory Policies on Friday, adding that detailed guidelines would be issued soon.

The income and loan limits to classify an exposure as eligible asset were last revised in 2015.

Micro finance crisis

Following the micro finance crisis in Andhra Pradesh in 2010, a sub-committee of the Central Board of the Reserve Bank, chaired by YH Malegam, was set up to study the issues in the sector.

Based on its recommendations, a separate category of NBFC- MFI was created with a detailed regulatory framework in December 2011. Industry players welcomed the move, and said that it is in tandem with the rising income levels.

“This is a good move, reflecting the change in household income since 2015, and allows clients to avail a higher loan amount from RBI-regulated formal financial institutions.

“Besides this change, it will be a win-win situation for the lender and the borrower by providing more room to individual NBFC-MFIs to lend and allow more households access credit,” said Manoj Nambiar, Chairperson, MFIN.

HP Singh, Chairman and Managing Director, Satin Creditcare Network, said: “This specially augers well for rural microfinance because new borrowers, who could not come in the fold earlier due to lending limits and household income limits, will now be included.”

Published on October 04, 2019

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