The regulator RBI has asked the Non-Banking Financial Company -Micro Finance Institutions (NBFC-MFIs) to charge only 4 per cent interest on loans extended for schemes sponsored by the government.
It said, "one of the eligibility criteria for loans granted by NBFC-MFIs to be treated as “Qualifying Assets” is that the variance between the maximum and minimum interest rate charged should not exceed 4%."
In view of the demand from various Government Agencies that provide loans to targeted socio-economic sections of the population to use the NBFC-MFIs to channelize such loans, the central bank said, "Since these loans are provided at concessional interest rates, it has been requested to exempt such loans from the regulation regarding maximum permissible variance in the interest rates."
To facilitate the use of NBFC-MFI network to distribute such targeted loans, the RBI said following terms should be met:
(i) Loans disbursed or managed by NBFC-MFIs in their capacity as channelizing agents for Central/State Government Agencies shall be considered as a separate business segment. These loans shall not be included either in the numerator (qualifying assets) or the denominator (total assets) for the purpose of determining the minimum qualifying assets criteria, at present, 85 percent;
(ii) consequent to (i) above, the interest charged on such loans shall be excluded for determining the variance between the maximum and minimum interest rate;
(iii) the cost of such funds shall not be reckoned for arriving at average cost of funds as well as interest rates charged to borrowers as per NBFC-MFIs directions.
4. In the circumstances, the NBFC-MFIs are hereby granted general permission to act as channelising agents for distribution of loans under special schemes of Central/State Government Agencies subject to following conditions:
(i) accounts and records for such loans as well as funds received/ receivable from concerned agencies shall be maintained in the books of NBFC-MFIs distinct from other assets and liabilities, and depicted in the financials/ final accounts/balance sheet with requisite details and disclosures as a separate segment;
(ii) such loans shall be subject to applicable asset classification, income recognition and provisioning norms as well as other prudential norms as applicable to NBFC-MFIs except in cases where the NBFC-MFI does not bear any credit risk;
(iii) all such loans shall be reported to credit information companies (CICs) to prevent multiple borrowings and present complete picture of indebtedness of a borrower.