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  • Reserve Bank of India
March 28, 2022 location Mumbai

New micro-lending norms to spur risk-based pricing, aid profitability

Linking of monthly repayment cap to overall indebtedness, greater role of credit bureau augur well

The Reserve Bank of India’s (RBI) new regulatory framework for microfinance loans1 announced earlier this month will engender greater harmonisation in the business landscape of different types of lenders, enhance the operational flexibility of NBFC-MFIs2 and support their profitability.

 

The new regulatory framework is applicable to all lenders in the microfinance space, including universal banks, small finance banks, NBFCs, and NBFC-MFIs.

 

Rise in bank NPAs to be muted due to various dispensations

 

Says Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings, “The last two years have been extremely challenging for microfinance lenders as they grappled with high credit costs. The changes announced will help NBFC-MFIs adopt risk-based pricing and improve their profitability, expand their addressable market and also address concerns on over-indebtedness of borrowers. These augur well for the next phase of growth in the industry.”

 

1 The Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022
2 Non-banking financial company – microfinance institution

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