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NBFC-MFI Margin Cap Revised: 12% till March 2014, Then Tiered

Current · Source: Reserve Bank of India · RBI/2012-13/517 · issued 31 May 2013 · ~1 min read
Quick answerRBI has set a uniform margin cap of 12% for all NBFC-MFIs until March 31, 2014. From April 1, 2014, the cap will be 10% for large MFIs (loan portfolio over Rs.100 crore) and 12% for others, aligning with Malegam Committee recommendations.
The rule, in the simplest words
How it plays out — a real example

An NBFC compliance officer in Indore must ensure that the interest rates charged on gold loans do not exceed 12% until March 31, 2014, to comply with RBI's margin cap. From April 1, 2014, they must review their pricing model to determine if they need to cap their margins at 10% or 12% based on their loan portfolio size.

What changed

Previously, margin caps varied by NBFC size. Now, a single 12% margin cap applies to all NBFC-MFIs until March 31, 2014. After that, the cap splits: 10% for large MFIs with portfolios above Rs.100 crore, and 12% for smaller ones.

What it means for you

NBFC-MFIs must immediately cap their margins at 12% to comply. Larger MFIs face a tighter 10% cap from April 2014, which will compress their net interest margins. All lenders need to review their pricing models and operational efficiency to maintain profitability under the new caps.

What you must do

Who it affects

All NBFC-MFIs, Large MFIs with loan portfolios over Rs.100 crore, Smaller NBFC-MFIs

❓ Common questions

What is the margin cap for NBFC-MFIs until March 31, 2014?

The margin cap is 12% for all NBFC-MFIs, regardless of their size.

What changes from April 1, 2014?

From April 1, 2014, large MFIs with loan portfolios exceeding Rs.100 crore must not exceed a 10% margin cap, while others continue with a 12% cap.

📜 Read the original circular — full text as issued by RBI
RBI/2012-13/517 DNBS (PD) CC.No.327/03.10.038/2012-13 May 31, 2013 All NBFCs Dear Sir, ‘Non Banking Financial Company-Micro Finance Institutions’ (NBFC-MFIs) – Directions – Modifications in Pricing of Credit - Margin cap Attention is invited to para 6 of DNBS.(PD)CC.No.300/03.10.38/2011-12 dated August 3, 2012 modifying inter alia the pricing of credit as given in DNBS.CC.PD.No.250/03.10.01/2011-12 dated December 2, 2011 .  On a review, it has been decided that the margin cap for all NBFCs irrespective of their size would be 12 % per cent till March 31, 2014.  However, with effect from 1st April, 2014 margin caps as defined by Malegam Committee may not exceed 10 per cent for large MFIs (loans portfolios exceeding Rs.100 crore) and 12 per cent for the others. Yours faithfully, (C.R.Samyuktha) Chief  General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2012-13/517 · issued 31 May 2013. The plain-English explanation above is BankPulse’s own independent summary.
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Worked example & action-note template

Example: if you are a Compliance officer at a bank this circular applies to (All NBFC-MFIs, Large MFIs with loan portfolios over Rs.100 crore, Smaller NBFC-MFIs), your first concrete step on “NBFC-MFI Margin Cap Revised: 12% till March 2014, Then Tiered” is: “Ensure your NBFC-MFI's margin does not exceed 12% until March 31, 2014.” (RBI issued this 31 May 2013).

  1. Circular: RBI/2012-13/517 -- NBFC-MFI Margin Cap Revised: 12% till March 2014, Then Tiered
  2. Issued: 31 May 2013
  3. Action required: Ensure your NBFC-MFI's margin does not exceed 12% until March 31, 2014.
  4. Action required: Prepare for the lower 10% margin cap from April 1, 2014, if your loan portfolio exceeds Rs.100 crore.
  5. Action required: Review and adjust interest rates and fee structures to align with the applicable margin cap.
  6. Action required: Monitor your loan portfolio size to determine which margin cap applies from April 2014.
  7. Owner: ____________ Target date: ____________
  8. Board/committee approval needed? Y / N
  9. Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.

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Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=8011&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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