Average interest rate on loans does not exceed the average borrowing cost plus the margin during a financial year
All registered non-banking financial companies (NBFCs) intending to convert themselves into non-banking financial company-micro finance institutions (NBFC-MFIs) must seek registration with immediate effect, and, in any case, not later than October 31, the Reserve Bank of India said in a notification on Friday.
The NBFCs have to maintain net-owned funds (NOF) at Rs..3 crore by March 31, 2013, and at Rs.5 crore by March 31, 2014, “failing which they must ensure that lending to the micro finance sector, that is, individuals, SHGs or JLGs, which qualify for loans from MFIs, would be restricted to 10 per cent of the total assets,” the RBI said in a notification. The RBI made some modifications in the directions issued on December 2, 2011, to NBFC-MFIs.
In order to provide encouragement to NBFCs operating in the north-eastern region, the minimum NOF is to be maintained at Rs.1 crore by March 31, 2012, and at Rs.2 crore by March 31, 2014.
However, all new companies desiring NBFC-MFI registration will need a minimum NOF of Rs.5 crore except those in the north-eastern region Rs.2 crore.
To allow operational flexibility, the RBI has asked these NBFCs to ensure that the average interest rate on loans during a financial year does not exceed the average borrowing cost during that financial year plus the margin, within the prescribed cap. Moreover, while the rate of interest on individual loans may exceed 26 per cent, the maximum variance permitted for individual loans between the minimum and the maximum interest rate cannot exceed 4 per cent.
The average interest paid on borrowings and charged by the MFI are to be calculated on the average monthly balances of outstanding borrowings and the loan portfolio, respectively.
Cap on margins
It has also been decided that the cap on margins as defined by the Malegam Committee may not exceed 10 per cent for large MFIs (loans portfolios exceeding Rs.100 crore) and 12 per cent for others.
“This measure will ensure that in a low cost environment, the ultimate borrower will benefit, while in a rising interest rate environment, the lending NBFC-MFIs will have sufficient leeway to operate on viable lines. The figures may be certified annually by statutory auditors and also disclosed in the balance Sheet,” the RBI said in the notification.