Economy News

Proposed RBI regulations, negative news for banks

The central bank had earlier said while announcing the monetary policy in February that there was a case for having a framework which was uniformly applicable to all regulated lenders.

This is related to the microfinance space including scheduled commercial banks, small finance banks and NBFC-Investment and Credit Companies.

The RBI has accordingly decided to come out with a consultative document harmonising the regulatory frameworks for various regulated lenders in the microfinance space in March 2021.

Post the 2010 Andhra Pradesh microfinance crisis, the RBI created a separate category of NBFC-MFIs and framed rules for these firms to operate.

These include caps on interest rates these companies can charge to their borrowers, number of lenders who can lend to the same borrower and amount of money that can be lent to a single borrower.

Satish, executive director of Sa-Dhan said that the proposed regulations will bring in a level play for banks and NBFCs doing the same business.

Microfinance Institutions Network, MFIN, another leading industry body of microlenders too welcomed the proposed RBI unified regulations for microlending business.

If the proposed regulations are implemented, banks will be forced to follow the same set of rules as the NBFC-MFIs which will mean that their MFI loan business could take some hit.

Banks will be restricted to the margin cap rules, single borrower lending limit rules as other NBFC-MFIs, said industry experts.

Experts claimed that this will have an impact on those banks which are more aggressive in microlending business such as Bandhan Bank.

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