With the Reserve Bank of India (RBI) broadly accepting the Malegam Committee recommendations and capping interest rate charges by microfinance institutions (MFIs) at 26%, MFIs hope banks will be less tight-fisted in supplying funds to the ailing sector.
According to industry estimates, total advances portfolio of the MFIs in the country is around R50,000 crore. While MFIs are still struggling to find out ways to manage profitability after the RBI capped margins at 12%, they are looking forward to increase the loan portfolio and at the same time get better deals from banks.
Vikram Akula, chairperson, SKS Microfinance, said that RBI’s act of accepting the framework of regulations recommended by the Malegam Committee have provided a tremendous boost to the sector.
S Dilliraj, CFO, SKS Microfinance, said, ?RBI has re-affirmed priority sector status for microfinance and broadened some parameters, such as increasing the annual income limits for eligible households to R60,000 for rural and R120,000 for urban and semi urban, increasing the interest cap to 26% and margin cap to 12%, and increasing total permitted outstanding to R50,000. These limits are well suited to SKS?s operating model. The statement brings in regulatory clarity and funding certainty.?
Chandra Shekhar Ghosh, CEO of Bandhan, said, ?It will be difficult for the MFIs to manage profitability in the next two years. Many MFIs will find it difficult to sustain with 12% margin initially.?
According to him, earlier the MFIs having a size less than R100 crore were allowed to have a margin of 12%, while others? margins were capped at 10%. Now that it has been streamlined, big MFIs will have some breathing space. The banks are unlikely to charge more than 14% from us,? said Ghosh.
Bhaskar Sen, CMD, United Bank of India, said the banks have actually been considering loans to MFIs as priority sector lending. ?It has been regularised now. Therefore, we do not need to reclassify them at present,? he said.
Shubhankar Sengupta, MD of Arohan Financial Services, said, ?The rate of interest for most of the MFIs ranged from 12-13.5%.?
However, MFIs have also pointed towards some ambiguities.”It is not yet clear whether the MFIs are allowed to charge processing fees on top of 26% cap. Moreover, there are issues with the costs of insurance. It will be difficult for us to assess the impact of the RBI announcement before such things are clarified,? said Sengupta.
According to both Ghosh and Sengupta, MFIs will have to ensure better returns on equity to ensure growth. Many of the MFIs, especially those below R100 crore level, have not been performing well and there are instances of downsizing their operations, they said.
“Bank loans to all MFIs, including NBFCs working as MFIs, on or after April 1, 2011, will be eligible for classification as priority sector loans if they conform to RBI regulations,” RBI governor D Subbarao said. RBI also decided to appoint a committee to review the priority sector lending classification.
As per the RBI norms, banks are required to lend 40% of their adjusted net credit to the priority sector, which includes agriculture, small-scale industries. “RBI has broadly accepted Malegam Committee recommendations, but adjusted some of the parameters,” Subbarao said. The panel has also suggested that small loans of up to R25,000 could be given to families having an income up to R50,000 per annum.