Deregulate Small Loan Rates, Say RBI Groups On Micro-fin

Mumbai, Nov 6: | Updated: Nov 7 2003, 05:30am hrs
The groups formed by the Reserve Bank of India (RBI) to identify measures to facilitate growth of micro-finance have inter-alia recommended total deregulation of interest rates on small loans below Rs two lakh and setting up of an autonomous National Micro Finance Equity Fund.

The fund will have an initial subscription of Rs 200 crore (to be raised to Rs 500 crore over 2-3 years) with contributions by banks, which may be treated as weaker section lending under priority sector. These recommendations were discussed at a high-level committee under the chairmanship of RBI deputy governor Vepa Kamesam and has now been placed on the RBI website for eliciting response from the public at large, the RBI said on Thursday.

The group on structure and sustainability issues headed by ICICI Bank executive director Nachiket Mor has suggested incentives like performance - linked compensation, flexible timings and more operational freedom in choosing partners for rural branches purveying micro-finance.

The group on funding issues headed by Oriental Bank of Commerce executive director VK Chopra has recommended special credit rating tools for MFIs, building up of an MFI information bureau and creating a separate category of non-bank finance companies (NBFCs) for MFIs with entry capital requirement of Rs 25 lakh.

The group on regulatory issues headed by Canara Bank executive director N Kanthakumar has recommended that micro-finance NBFCs should not be allowed to accept deposits until their capital is raised to Rs 2 crore. Capital adequacy norms for such NBFCs should be more stringent compared to formal financial institution and should be a minimum of 10 per cent.

Commercial banks/regional rural banks may provide 10 per cent of their loans to MFIs as grants for capacity building which can be reimbursed by the National Bank for Agriculture and Rural Development from Micro Finance Development Fund.

The group on capacity building issues headed by Sidbi chief general manager A Vikraman has recommended formation of a permanent working group on micro-finance to monitor and review the progress on allocation of resources and undertaking of capacity building initiatives. Each bank could establish an exclusive micro-finance cell to design strategies of the bank.