MICROCAPITAL BRIEF: Reserve Bank of India Extends Deadline for New Provisioning, Asset Classification Norms for Non-Banking Finance Company Microfinance Institutions

The Reserve Bank of India (RBI), India’s central banking authority, has extended the deadline for non-banking finance company (NBFC) microfinance institutions (MFIs) in India to implement new provisioning and asset classification norms. The new benchmarks were originally to take effect April 1, 2012, but the for-profit MFIs now have until April 1, 2013, to implement the guidelines. The new rule mandates that NBFC MFIs make provisions for 100 percent of aggregate loan installments past due by 180 days or more. This proved difficult for MFIs in the Indian state of Andhra Pradesh as nearly all of their receivables were that far past due following the liquidity crisis that began in the region in 2010. Implementing the provisions at this time would reportedly make it impossible for these MFIs to maintain the now-required net worth of at least INR 50 million (USD 973,000) and capital adequacy ratio of at least 15 percent.

All the other new guidelines of RBI, including the minimum net worth and capital adequacy ratio, must still be met as of April 1, 2012.

By Charlotte Newman, Research Associate

About 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.

Sources and Additional Resources:

Business Standard: “RBI Offers Breather to MFIs,” http://www.business-standard.com/india/news/rbi-offers-breather-to-mfis/468486/

Reserve Bank of India: “Introduction of New Category of NBCFs- ‘Non Banking Financial Company Micro Finance Institutions (NBFC-MFIs)- Directions,” http://rbi.org.in/scripts/NotificationUser.aspx?Id=6857&Mode=0#234

MicroCapital.org story, March 26, 2012, “MICROCAPITAL BRIEF: Business Standard Reports on ‘New Breed’ of Small Indian Microfinance Institutions,” https://www.microcapital.org/microcapital-brief-business-standard-reports-on-new-breed-of-small-indian-microfinance-institutions/

MicroCapital.org story, January 24, 2012, “MICROCAPITAL BRIEF: Microfinance Institutions in Andhra Pradesh Request Extension to Meet New Capital Adequacy Ratios Imposed by Reserve Bank of India,” https://www.microcapital.org/microcapital-brief-microfinance-institutions-in-andhra-pradesh-request-extension-to-meet-new-capital-adequacy-ratios-imposed-by-reserve-bank-of-india/

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

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