The Reserve Bank of India (RBI) on Wednesday granted a one-time waiver to banks for restructuring loans given to microfinance institutions (MFI). Accordingly, these unsecured loans ? restructured before March 2011 ? will be treated as standard assets. The central bank has also asked banks to continue to lend to the MFI sector to ensure continuity of operations.
?This measure initiated by the RBI is expected to impart some liquidity support by banks to MFIs and facilitate a ?holding on? operations for some time till the Malegam Committee submits its report and measures are taken to bring about long term and structural changes in the functioning of MFIs,? the RBI said in a statement.
?The Reserve Bank has asked banks to extend the regulatory asset classification benefit to standard restructured MFI accounts, even if they were not fully secured,? said the central bank in the statement. Further, the RBI has also advised banks that they should endeavour to recycle the collections to MFIs so as to ensure that the intended ?holding on? operation is successful.
However, the central bank has emphasised that, ?This relaxation is purely a temporary measure and would be applicable to bank loans to MFIs restructured by banks up to March 31, 2011.?
The relaxation comes after the Indian Banks Association (IBA) asked the RBI in December 2010 to grant a waiver and treat the MFI loans, which are restructured, as a standard asset. MFIs have asked banks to restructure loans because collections in the state of Andhra Pradesh have dropped to the levels of 15-20%.
?Loans to the tune of Rs 1,500 crore would be restructured by the banking industry. However, none of the MFIs have asked for a loan restructuring so far,? said a banker.
M R Rao, chief executive officer and managing director, SKS Microfinance Ltd said, ?We do not need any restructuring of loans. However, this would help the industry at large.?
?In the last two to three months we have received about Rs 400 crore of funding from banks. In Andhra Pradesh, we have received loan applications from 11,000 borrowers we had sought approval to lend,? he added. ?Loan collections in the state is also improving for SKS,? added Rao. Mathew Titus, executive director Sa-Dhan said, ?This measure would give MFIs time to adjust to the provisions of the Microfinance Bill and also normalise operations. This would give comfort to bankers to continue supporting the sector.?
In the interim, Yes Bank has made an offer to normalise relationship with MFIs by extending fresh line of credit to the institutions. A senior official at Ujjivan confirming the move said, ?Yes Bank has withdrawn the recall notice and offered fresh term loan with immediate sanctions. Ujjivan Board is reviewing the offer.?
The private sector bank had recalled loans from MFIs following the passage of the Microfinance Bill in AP. In reaction to this Ujjivan, like some of the other MFIs registering their protest, pre-paid the entire loan amount to the bank before December 31 and also filed a complaint with the CEO and MD of Yes Bank.