RBI raises lending limit of micro-finance institutions

The Reserve Bank of India has increased the lending limit of micro-finance institutions (MFI) to Rs 1.25 lakh per borrower from Rs 1 lakh. This comes as another step towards smooth flow of liquidity to retail borrowers, amid the subdued consumption and liquidity crunch.

The `Statement of Development and Regulatory Policies` released on Friday said that taking into consideration "the important role played by MFIs in delivering credit to those in the bottom of the economic pyramid and enable them to play their assigned role in a growing economy", the RBI has proposed to "raise the lending limit from Rs 1 lakh to Rs 1.25 lakh per eligible borrower".

It also proposed to increased the household income limit for borrowers of NBFC-MFIs from the current level of Rs 1 lakh for rural areas and Rs 1.60 lakh for urban or semi urban areas to Rs 1.25 lakh and Rs 2 lakh, respectively.

The RBI said that it would shortly issue the detailed guidelines on the same.

The previous revision of income and loan limits to classify an exposure as eligible asset were done in 2015.

In the wake of the Andhra Pradesh micro finance crisis in 2010, a Sub-Committee of the Central Board of the Reserve Bank was constituted under the chairmanship of Y. H. Malegam to study issues and concerns in the MFI sector. Based on the recommendations of the Committee, it was decided to create a separate category of Non-Banking Financial Company-Micro Finance Institution (NBFC-MFI) and a detailed regulatory framework for these was put in place in December 2011.