RBI clarifies that there is no repayment holiday for borrowers

Chandigarh, 8 December, 2016: The Reserve Bank of India in a letter vide 1056/22.10.038/2016-17 to the CEO of  Microfinance Institutions Network (MFIN) dated December 6th 2016 has communicated that the instructions in the circular dated 21st November 2016 on relaxation in prudential norms should not be interpreted as repayment holiday or loan waiver for the borrowers.  This was in response to the clarification sought by MFIN, Self Regulatory Organisation and premiere industry association for the microfinance industry.

The RBI circular “Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances” had provided additional 60 days for recognition of a standard loan account as substandard.  This was misinterpreted by many borrowers and sections of the media as the loan waiver for the 60 days period.  Ratna Vishwanathan, CEO, MFIN said, “The clarification has come as a relief to NBFC-MFIs as it will provide greater clarity to borrowers in terms of loan repayments. After the issuance of the said circular, there was confusion as it was interpreted commonly a deferment of loan repayment by 60 days. The fact that certain local vested interests  are using this to mislead borrowers has been a  matter of deep concern to the sector.”

As the SRO for the sector, MFIN is also responsible for client protection and ensuring that the voluntary Industry Code of Conduct for the sector is adhered to by the members. NBFC-MFIs are RBI regulated financial institutions which give unsecured loans to women borrowers from low income households. Almost 85% of NBFC-MFI funds are commercially borrowed from banks and MUDRA and are loans for the unbanked. The Gross Loan Portfolio of NBFC MFIs today is around Rs 65,000 crores. Any default will have an impact on the Pradhan Mantri  MUDRA Yojana (PMMY) and impact bank NPAs.

About Microfinance Institutions Network

Microfinance Institutions Network (MFIN) is the premier Industry Association and Self-Regulatory Organisation (SRO) for the NBFC-MFI (Non-banking Financial Company Microfinance Institutions) Industry in India and its current membership consists of 53 NBFC-MFIs. The aggregate business of MFIN members constitutes over 90 per cent of the Indian microfinance industry (excluding SHGs). Member NBFC-MFIs provide credit to 3.5 crore women across India without collateral to take forward the cause of Financial Inclusion. MFIN seeks to work closely with the RBI and other key stakeholders to achieve larger financial inclusions goals.