NBFC-MFIs to gain from RBI’s revised norms: Crisil

The Reserve Bank of India (RBI)’s revised framework for microfinance loans will engender ‘greater harmonisation’ in the business landscape of different types of lenders, enhance operational flexibility of NBFC-MFIs and support their profitability, rating agency Crisil said on Monday.

Krishnan Sitaraman, senior director and deputy chief ratings officer, Crisil Ratings, said: “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.”

The agency said with the removal of interest margin cap on lending rates, NBFC-MFIs will have the flexibility to adopt risk-based pricing and this will support their profitability. Specifically, this will benefit mid-sized entities, which were handicapped by the lending rate cap linked to the base rate, given their relatively higher borrowing costs. NBFC-MFIs with rural focus, where competition is less and borrowers are relatively less sensitive to interest rates, will also benefit from this revised framework.

Earlier norms did not permit lending by more than two NBFC-MFIs to the same borrower and capped the loan quantum for lending cycles. “By removing the lender and cycle limit norms and instead prescribing a limit on total loan repayment obligations, all lenders will now have to analyse the comprehensive credit information of borrowers and not just their microfinance loans. This move is intended to address concerns of over-indebtedness of borrowers ― an issue that is critical from a socio-political perspective, too,” Crisil said.

Managing director of Kolkata-based NBFC-MFI Arohan Financial Services Manoj Nambiar told FE that the regulatory framework for microfinance loans, announced by the RBI, is “a hugely positive, radical and a paradigm shift” for the microfinance industry. Credit guideline harmonisation will ensure credit quality improvement and lower credit costs for microfinance lenders. Deregulation on pricing will allow NBFC-MFIs to price loans for risk based on borrower repayment track record. “For NBFC-MFIs, deregulation on pricing will allow them to price for risks. A good customer can get a better rate and a new to credit customer might get a slightly higher rate. It can help NBFC-MFIs to fix prices so that they can be viable and sustainable in the long run and can extract capital,” Nambiar said.

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