In its presentation of the Monetary Policy Report for October 2019 and talking of Development and Regulatory Policies, the Reserve Bank of India (RBI) announced change in regulatory framework based on recco for Non-Banking Finance Companies (NBFC) and Micro-Finance Institutions (MFIs).
The Central Bank said that considering the important role played by MFIs in delivering credit to those in the bottom of the economic pyramid and by that allowing them to play an essential assigned role in a growing economy, it has proposed to revise the following:
- Increase the household income limit for borrowers of NBFC-MFIs from the current level of Rs 1 lakh for rural areas to Rs 1.25 lakh.
- Increase the household income limit for borrowers of NBFC-MFIs of urban/semi urban areas from Rs 1.6 lakh to Rs 2 lakh.
- Increase the lending limit from Rs 1 lakh to Rs 1.25 lakh per eligible borrower.
In 2010, in the wake of a micro-finance crisis in Andhra Pradesh, a sub-committee of the Central Board of the Reserve Bank was constituted to study and address the issues of the MFI sector.
Based on the recommendations of this Committee, it was decided to create a separate category of NBFC, viz., Non-Banking Financial Company-Micro Finance Institution (NBFC-MFI) and a detailed regulatory framework for NBFC-MFIs was put in place in December 2011. The income and loan limits were last revised in 2015 to classify an exposure as eligible asset.