What changed
RBI modified the December 2011 NBFC-MFI framework after industry feedback. Key changes: existing NBFCs converting to NBFC-MFIs must maintain NOF of Rs.3 crore by March 31, 2013 and Rs.5 crore by March 31, 2014 (North East: Rs.1 crore by March 31, 2012 and Rs.2 crore by March 31, 2014). New companies need Rs.5 crore NOF (North East: Rs.2 crore till further notice). Qualifying assets criteria now apply only to assets originated on or after January 1, 2012; older assets as on January 1, 2012 count toward both criteria and can run off on maturity. Income generation loans requirement reduced from 75% to 70% of total loans, allowing up to 30% for other purposes like housing, education, medical. Borrower can be member of only one SHG or one JLG or borrow individually, and cannot borrow from more than 2 MFIs.
What it means for you
NBFCs transitioning to NBFC-MFIs get more time and lower initial capital requirements, easing compliance pressure. The relaxation on qualifying assets helps NBFCs with legacy portfolios avoid immediate restructuring. Reducing the income generation loan threshold to 70% gives MFIs flexibility to meet client needs for consumption and emergency loans. Stricter multiple lending rules aim to prevent over-indebtedness, requiring MFIs to strengthen borrower verification systems.
What you must do
- Existing NBFCs intending to convert to NBFC-MFI must apply for registration by October 31, 2012, and plan capital infusion to meet staggered NOF targets.
- Review loan portfolio to ensure assets originated after January 1, 2012 comply with 85% qualifying assets norm; pre-January 1, 2012 assets count toward both criteria and can run off on maturity without renewal.
- Adjust lending mix to ensure at least 70% of loans are for income generation, with up to 30% for other purposes like housing, education, medical.
- Implement systems to track borrower membership (only one SHG or one JLG or individual) and limit borrowing to maximum 2 MFIs per borrower.
- Ensure compliance with household income caps (Rs.60,000 rural, Rs.1,20,000 urban/semi-urban) and total indebtedness not exceeding Rs.50,000.
Who it affects
All NBFCs intending to convert to NBFC-MFI, Existing NBFC-MFIs, New companies seeking NBFC-MFI registration, NBFCs operating in North Eastern Region, Microfinance borrowers (SHGs, JLGs, individuals)
What is the deadline for existing NBFCs to apply for NBFC-MFI conversion?
Existing NBFCs must seek registration with immediate effect and not later than October 31, 2012.
Can a borrower take loans from more than 2 MFIs?
No. A borrower can be a member of only one SHG or one JLG or borrow individually, and cannot borrow from more than 2 MFIs.
What is the new income generation loan requirement?
At least 70% of total loans must be for income generation activities; up to 30% can be for other purposes like housing repairs, education, medical, and emergencies.