4th Aug 2012
The Reserve Bank of India (RBI) in a notification issued on 3 August 2012 stated that all registered non-banking financial companies (NBFCs) which who intend to convert themselves into non-banking financial company-micro finance institutions (NBFC-MFIs) would have to seek registration with immediate effect, not later than 31 October 2012.
The central bank also mentioned that the NBFCs have to maintain net-owned funds (NOF) at Rs 3 crore by 31 March 2013, and at Rs.5 crore by 31 March 31 2014. If the NBFCs fail maintain the NOF they will have to ensure that lending to the micro finance sector, that is, individuals, SHGs or JLGs, which qualify for loans from MFIs to be restricted to 10 per cent of the total assets.
The NBFCs operating in the north-eastern region are to maintain the minimum NOF at Rs.1 crore by 31 March 2012, and at Rs.2 crore by 31 March 2014.
Operational Flexibility
To promote operational flexibility the NBFCs are to ensure that the average interest rate on loans during a financial year does not exceed the average borrowing cost during that financial year plus the margin, within the prescribed cap. The RBI notification also stated that while the rate of interest on individual loans may exceed 26 per cent, the maximum variance permitted for individual loans between the minimum and the maximum interest rate cannot exceed 4 per cent.
The average interest paid on borrowings and charged by the MFI will have to be calculated on the average monthly balances of outstanding borrowings and the loan portfolio, respectively.
Cap Margin
The RBI also decided that the cap on margins as defined by the Malegam Committee are not to exceed 10 per cent for large MFIs (loans portfolios exceeding Rs.100 crore) and 12 per cent for others. The measure was initiated to ensure that in a low cost environment, the ultimate borrower will benefit, while in a rising interest rate environment and that the lending NBFC-MFIs will have sufficient leeway to operate on viable lines.