The Reserve Bank of India is likely to relax some of the norms pertaining to microfinance institutions.
Dr D. Subbarao, Governor, RBI, said norms relating to net worth, capital adequacy and provisioning needs of microfinance institutions will be relaxed in phases to help troubled micro-lenders.
Some small MFIs are also not able to meet the Rs 5-crore entry point capital requirement to be eligible to register as an NBFC-MFI.
In particular, the Andhra Pradesh-based MFIs, which are saddled with huge losses, large non-performing assets and eroded capital, are not able to comply with the capital and provisioning norms.
The RBI is working on resolving these issues so that all these microfinance institutions can get back on track, he added.
Dr Subbarao, however, noted that investors’ sentiment towards the MFI sector has improved in the past few months as some of the micro-lenders have been able to raise money from venture capital funds. In his oration as part of Indian Overseas Bank’s Platinum Jubilee celebrations at Chennai on Wednesday, Dr Subbarao said between September 2010 and December 2011, the Reserve Bank raised the policy rate by 250 basis points.
During the same period, the average base rate and weighted average lending rate of scheduled commercial banks increased by a similar magnitude.
After the Reserve Bank reduced the rate by 50 basis points in May 2012, twenty-six banks responded with a reduction in their base rates evidencing more efficient monetary policy transmission in both upward and downward directions.
Pricing of credit
One problem that has still persisted even after the introduction of the base rate system relates to the lack of transparency in the customer-specific spread charged to a borrower over the base rate. There have been complaints that the spread charged to a customer has been revised upwards without any apparent change in risk profile, said the Governor.
Also, where floating rate loans are concerned, existing customers have been disadvantaged vis-à-vis new customers with similar credit ratings, resulting in complaints about discrimination.
To address this, the Reserve Bank has constituted a working group under the chairmanship of Deputy Governor, Mr Anand Sinha, to determine the principles that must govern proper, transparent and non-discriminatory pricing of credit. The working group is expected to submit its report by August 2012, he said.
Later responding to a question on inflation, he said the Reserve Bank is committed to bringing inflation under control. The regulator did its best and “will continue to remain committed to taming inflation.”