MICROCAPITAL BRIEF: Microfinance Institutions in Andhra Pradesh Request Extension to Meet New Capital Adequacy Ratios Imposed by Reserve Bank of India

Microfinance institutions (MFIs) in the Indian State of Andhra Pradesh (AP) reportedly have requested that the Reserve Bank of India (RBI) extend the deadline for MFIs to meet its new capital adequacy ratio (CAR) requirements. Current rules demand that the general CAR of 15 percent be met by March 31, although microfinance companies with more than 25 percent of loan portfolio in AP are already permitted to maintain a minimum CAR of 12 percent through April 2012. Business has been slow in AP since the state’s passing in 2010 of Regulation of Microlending Act, which requires government approval of each microloan.

About the Reserve Bank of India (RBI)
Established in 1935, the Reserve Bank of India (RBI) undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While all microfinance institutions (MFIs) and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5 percent stake in the outfit, RBI owns a one-percent stake in NABARD as of 2011.

By Ariana Malushi, Research Associate

Business Standard: “Andhra MFIs seek time to meet capital adequacy norms”

MicroCapital.org Story, May 19, 2011, “MICROCAPITAL BRIEF: Confusion Continues Over Regulation of Microfinance Institutions (MFIs) in India, State of Andhra Pradesh May Adjust Law to Reconcile With Federal Rules”

MicroCapital.org Story, October 11, 2011, “MICROCAPITAL BRIEF: Supreme Court of India Sends SKS Back to Andhra Pradesh High Court to Challenge Microfinance (Regulation of Moneylending) Act of 2010”

MicroCapital.org Story, November 11, 2008, “MICROCAPITAL EXCERPT: Sa-Dhan Publishes Online Interactive State-by-State Map of Microfinance Institutions in India”

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