Tuesday, August 14, 2012

RBI gives MFI-NBFCs loan pricing flexibility

Micro finance Institutions (MFI)-NBFCs have been allowed operational flexibility whereby the
interest rate that they can charge on individual loans can exceed the earlier cap of 26 per cent. However, the flexibility on pricing loans comes with a caveat that the maximum variance permitted for individual loans between the minimum and maximum interest rate cannot exceed 4 per cent. Micro finance Institutions (MFIs) have to ensure that the average interest rate on loans during a financial year does not exceed the average borrowing cost during that period plus the margin  within the prescribed cap. Even as the cap on interest rate has been removed, the Reserve Bank of India (RBI) has persisted with the cap on margins - 10 per cent for large Micro finance Institutions (MFIs) (with loan portfolio exceeding Rs 100 crore) and 12 per cent for others.

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