Meeting with Bankers on Credit to Micro Finance Institutions (MFIs)

The Reserve Bank of India today met select banks and SIDBI to get an assessment regarding the ground level situation in the microfinance sector in Andhra Pradesh and other states and the need for any interim measures.

Banks informed that collections by MFIs in Andhra Pradesh have deteriorated considerably and there were some incipient signs of the contagion spreading to other states. As far as at the banks’ exposures to MFIs were concerned, the MFIs had so far been able to meet their repayment obligations to the banks till November 2010. However, going forward this may be a matter of concern.  The general view of the banks was that while the structural issues regarding the MFI sector may be addressed by the Malegam Committee, some interim measures may be required to address the gap between the recoveries by MFIs and their payment commitments to banks. The banks stressed on the need to work out an interim arrangement involving, inter alia,  rescheduling of exposures to MFIs subject to certain covenants such as MFIs agreeing to reduce their leverage and growth projections. Bankers requested Reserve Bank to consider some regulatory concessions to enable them to reschedule the exposure to MFIs.

The RBI sensitized the banks to the need to maintain funding lines to MFIs on merits to prevent contagion.  The Indian Banks Association will shortly come up with concrete proposals for the measures to be taken in the interim, for consideration of Reserve Bank of India. 

R.R. Sinha
Deputy General Manager

Press Release : 2010-2011/876