The recommendations of M. V. Nair Committee on Priority Sector Lending has come as a big relief to Non-banking Finance Company-Microfinance Institutions.

The committee, constituted by the Reserve Bank of India, has recommended that 5 per cent of bank credit to NBFCs could be classified as priority sector. It also states that securitised loans could also be classified under the priority sector.

The NBFC-MFIs, which are still facing funds-crunch owing to the adverse impact of the Andhra Pradesh microfinance crisis, stand to gain significantly if the recommendations are implemented, say experts.

“We are very happy with the recommendations. This is one more signal of the RBI's and banking sector's support to MFIs,” Mr Alok Prasad, Chief Executive Officer, Microfinance Institutions Network, told Business Line on Tuesday.

The recommendations also indicate that the ‘best way' forward for financial inclusion is the robust partnership model between banks and MFIs, he added.

The decision to allow banks to get portfolio directly from MFIs is welcome, said Mr Mathew Titus, Executive Director, Sa-Dhan.

“It is a big challenge for banks to source good-quality loan portfolio. Though NBFCs offer small-ticket loans, they are mostly good-quality ones.

“This will also be a new window of opportunity for non-financial agencies who may want to enter this business of purely originating and passing on portfolio to banks,” he added.

More clarity needed

There is also need for more clarity in certain aspects. “How do banks differentiate between normal NBFC and NBFC-MFIs is not clear,” said Mr P. Kishore Kumar, Chief Executive Officer, Trident Microfin.

All women loans can be considered as weaker section loans, says the panel. “This is good because all MFI advances to women will now get this status. As of now this is only applicable in case of loans to women belonging to reserved categories,” Mr Kishore Kumar said.

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