NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, August 6, 2012

India’s central bank eased norms for non-bank microfinance companies, removing a cap on lending rates and relaxing risk-provision standards, after some lenders found it difficult to meet existing regulations.

Non-bank microlenders must keep their average loan rates within a year at a fixed margin over average borrowing costs, the Reserve Bank of India said in a statement placed on its website late yesterday, scrapping an earlier limit of 26 percent. The maximum difference over funding costs shouldn’t exceed 10 percent for large microfinance firms and 12 percent for the rest, according to the monetary authority.

The RBI also allowed the companies to include risk buffers provided against advances in the southern Andhra Pradesh state, which curtailed debt and waived loans to arrest a spate of farmer suicides, in their so-called net owned funds. The inclusion of such provisions should be gradually reduced over a five-year period, according to the statement.