The Reserve Bank of India on Wednesday said loans given by banks to microfinance institutions can get the “priority sector loan” tag only if the latter fulfill criteria relating to lending rate and margin cap.
MFIs, which are on-lending by resorting to bank finance, have to ensure that the interest rate their customers pay is the average Base Rate of five largest commercial banks by assets multiplied by 2.75 per annum or cost of funds plus margin cap, whichever is less.
The average of the Base Rate shall be advised by the RBI.
Further, with effect from April 1, 2014, the margin cap cannot exceed 10 per cent for MFIs having loan portfolio exceeding Rs 100 crore and 12 per cent for others as against 12 per cent for all hitherto.