MICROCAPITAL BRIEF: RBI Wants Microfinance Institution Deposit-Taking Cut From Micro Financial Sector Bill

Deputy Governor Anand Sinha of the Reserve Bank of India (RBI), India’s central banking authority, reportedly announced in a budget speech that RBI does not support allowing microfinance institutions (MFIs) to take deposits from clients. The comment is a response to the draft of the Micro Finance Institutions (Development and Regulation) Act 2011, which was recently circulated by the Finance Ministry for public comments, and contains a provision that will allow MFIs to collect savings from thrift, or self-help groups. Mr Sinha reportedly stated that deposit-taking should be limited to traditional banks. He also said MFIs need to improve upon issues such as concentration risk, corporate governance for client protection and reduction of operational costs. In addition, Mr Sinha stated that MFIs must measure and disclose performance better.

By Charlotte Newman, Research Associate

About Reserve Bank of India
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.

Sources and Additional Resources:

Smart Investor: “RBI Not in Favour of Allowing MFIs to Take Deposits: Sinha,” http://smartinvestor.business-standard.com/market/Marketnews-114190-Marketnewsdet-RBI_not_in_favour_of_allowing_MFIs_to_take_deposits_Sinha.htm

MicroCapital.org story, April 12, 2012, “MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Imposes Requirements on Communications with Microfinance,” https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-imposes-requirements-on-communications-with-microfinance/

MicroCapital.org story, March 28, 2012, “MICROCAPITAL BRIEF: Draft Microfinance Institutions Bill in India to Moot Local Regulations, Allow RBI to Set Rate Cap, Establish Advisory Councils, Microfinance Development Fund,” https://www.microcapital.org/microcapital-brief-draft-microfinance-institutions-bill-in-india-to-moot-local-regulations-allow-rbi-to-set-rate-cap-establish-advisory-councils-microfinance-development-fund/

MicroCapital Universe Profile: Reserve Bank of India
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29

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