In the second quarter review of monetary policy, a sub-committee was constituted to study issues and concerns in the MFI sector in November 2010. But the committee submitted the report in January 2011. It has been announced under the monetary policy Statement 2011-2012 that the framework recommended by the committee is accepted by the Bank. There are several categories under NBFC name. Likewise, the Non-banking financial company has a separate category by the name of Micro-finance Institutions (NBFC-MFI). In this article, we will let you know the NBFC-MFI Directions. These Directions shall come into existence with effect from 2 December 2011. To know about NBFCs regulations you can follow our blog as well as register NBFC here.

NBFC-MFI Directions

There are certain NBFC-MFI Directions given by Reserve bank of India (RBI) that has to be followed. These are:

  • Entry Point Norm: all NBFC-MFI (excluded North Eastern Region) of the country must have a minimum net owned funds of 5 crores. Whereas NBFC-MFI located in the north-eastern region must have a minimum Net owned funds of 2 crores for the NBFC Registration. There is a different implementation of asset classification and provisioning norms for NBFC- MFIs to 1 April 2013.
  • Prudential Norms: There are several parts in a single head:

1. Capital Requirement: it is mandatory for all new NBFC-MFI to maintain a capital adequacy ratio consisting of Tier I and Tier II Capital and that shall not be less than 15% of its aggregate risk-weighted assets. After totaling, the amount of Tier II capital must not exceed 100% of Tier I capital. The CRAR for NBFC-MFI having more than 25% loan portfolio in the Andhra Pradesh will be at 12% only for the year 2011-2012. Afterward, it is mandatory to maintain up to 15% CRAR.

2. Asset Classification and Provisioning Norms: Assets are classified as (a) Standard assets  (b) Nonperforming assets

The standard asset is defined as the assets in respect of which no default in payment or repayment of interest is perceived. Besides, that neither reveals any problem nor having more than normal risk attached to the business.

Nonperforming assets are defined as the assets for which interest or principal payment has remained overdue for 90 days or can be more.

Under-provisioning Norms, loan provisions are to be maintained by NBFC-MFI at any point but it should not be less than the higher of 1% of the outstanding loan portfolio/ 50% of the aggregate loan installments that are overdue for more than 90 days and less than 180 days and 100% of the aggregate loan installments which are overdue for 180 days or more.

3. Pricing of Credit: Every new NBFC-MFI must maintain an aggregate cap which should not be more than 12%. The individual loans of interest shall not be exceeded 26% p.a and must be calculated by reducing balance basis. Moreover, processing charges shall not be more than 1% of gross loan amount.

4.  Fair Practices in Lending: NBFC-MFIs are allowed as per NBFC-MFI Directions to lend any individual borrowers even when they are not a member of a joint liability group (JLG) or self-help group. But a borrower is not allowed to be a member of more than one SHG/JLG. Even not more than two NBFC-MFI can lend to the same borrower.

5. Corporate Governance: If any NBFC wants to issue Master Circular then it will be issued on Corporate Governance vide CC NO. 187 dated 1 July 2011 will be applied to NBFC-MFI too.

6. Improvement of efficiency: It is given in the guidelines that an NBFC-MFI shall review the back office operations. Also, necessary investments in information technology and systems to achieve better control, simplify procedures and reduce costs.

For further more information regarding  NBFC registration, NBFC Micro Finance Institution Requirements & Registration      you can visit our website: Legal Raasta

Give us a ring at 8750008585 and you can send your query on Email: [email protected]

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