Team, Vinod Kothari Consultants Pvt. Ltd.
The RBI on November 08, 2019 revised the limits relating to the qualifying assets criteria, giving a much needed boost to Micro-Finance Institutions. The change in limits comes pursuant to the Statement on Developmental and Regulatory Policies issued as part of the Monetary Policy Statement dated 04 October, 2019.
A detailed regulatory framework for MFI’s was put into place in December, 2011 based on the recommendations of a Sub-Committee of the Central Board of the Reserve Bank. The regulatory framework prescribes that an NBFC MFI means a non-deposit taking NBFC that fulfils the following conditions:
- Minimum Net Owned Funds of Rs. 5 Crore.
- Not less than 85% of its net assets are in the nature of qualifying assets.
Thus meeting the qualifying assets criteria is crucial to be classified as an NBFC-MFI. The income and loan limits to classify an exposure as an eligible asset were last revised in 2015.
In light of the above and taking into consideration the important role played by MFIs in delivering credit to those in the bottom of the economic pyramid and to enable them to play their assigned role in a growing economy, it was decided to increase and review the limits.
Revised Qualifying assets criteria
The changes are highlighted in the table below:
|Qualifying Assets Criteria|
|Erstwhile Criteria||Revised Criteria|
|Qualifying assets shall mean a loan which satisfies the following criteria:|
|i. Loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding ₹ 1,00,000 or urban and semi-urban household income not exceeding ₹ 1,60,000;||i. Loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding ₹ 1,25,000 or urban and semi-urban household income not exceeding ₹ 2,00,000;|
|ii. Loan amount does not exceed ₹ 60,000 in the first cycle and ₹ 1,00,000 in subsequent cycles;||ii. Loan amount does not exceed ₹ 75,000 in the first cycle and ₹ 1,25,000 in subsequent cycles;|
|iii. Total indebtedness of the borrower does not exceed ₹ 1,00,000;||iii. Total indebtedness of the borrower does not exceed ₹ 1,25,000;|
|Note: All other terms and conditions specified under the master directions shall remain unchanged.|
The Statement on Developmental and Regulatory Policies called for revisions in the household income and loan limits only. The notification of the RBI additionally, in light of the change in total indebtedness of the borrower, felt it necessary to also increase the limits on disbursal of loans.
The revised limits are effective from the date of the circular, i. e. November 08, 2019.
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