RBI awaits panel report on micro lending | india | Hindustan Times
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RBI awaits panel report on micro lending

Uncertainty looms over the growth of microfinance institutions (MFIs) in the country, as Reserve Bank of India (RBI) and the government await the recommendations of a panel on regulating the sector.

india Updated: Dec 09, 2010 21:23 IST

Uncertainty looms over the growth of microfinance institutions (MFIs) in the country, as Reserve Bank of India (RBI) and the government await the recommendations of a panel on regulating the sector.

Micro-lenders, who have been facing a liquidity crunch due to poor recovery and rising NPAs (non-performing assets), have been demanding that a dedicated corpus be set up to help them tide over a slowdown in their business.

Microfinance companies under the umbrella of MFI Network (MFIN), comprising 44 MFIs, have urged RBI to direct public sector banks (PSBs) to set up a Rs 1,000-crore corpus for lending to the MFIs.

The demand found mention in the central bank's board meeting in Kolkata on Thursday. "No decision has been taken on the issue... PSBs are lending to the MFIs, there is no need for any additional fund," an official who did not wish to be identified told Hindustan Times.

According to news agencies, RBI governor Duvvuri Subbarao has said bank would convene a meeting of lenders to understand their concerns about MFIs.

Meanwhile, RBI has constituted a panel to consider these issues, headed by chartered accountant Y.H. Malegam. It is expected to submit its report by end of January 2011.

"There is no bar on lending to MFIs, we are lending to them on a case-to-case basis depending on the financials.," said chairman and managing director, Indian Bank, TM Bhasin.

"Our demand is still under consideration and no decision has yet been taken," MFIN president, Vijay Mahajan told HT.

Meanwhile, All-India Bank Employees' Association (AIBEA) has opposed the MFIN's demand. "RBI should not accept it ... Banks should not give loans to MFIs under priority sector category," said AIBEA general secretary, C.H. Venkatachalam. "PSBs should (instead) go for large-scale micro lending through more number of rural branches."

"Liquidity is required as small MFI operators are suffering, due to higher scale of operation," said executive director, Sa-Dhan, Mathew Titus said. "The interest rates charged by the MFIs will definitely come down," he added.

MFIs got a jolt when the Andhra Pradesh government issued an Ordinance in October to control interest rates charged by MFIs and check their coercive recovery tactics.