What changed
RBI replaced the earlier microfinance regulatory approach with a single Master Direction covering all regulated entities. The definition of microfinance loan is now based on household income (up to ₹3 lakh) and collateral-free nature, not loan size or purpose. Entities must adopt board-approved policies for income assessment and repayment periodicity.
What it means for you
Banks and NBFCs must align their microfinance portfolios with the new income-based definition, ensuring all collateral-free loans to households earning up to ₹3 lakh are classified as microfinance loans. This standardizes compliance across lenders and removes earlier product-specific distinctions. Lenders need to update their credit policies, income verification processes, and repayment options to meet the new norms.
What you must do
- Review and update board-approved policy for household income assessment as per Annex I of the Direction.
- Ensure all collateral-free loans to households with annual income up to ₹3 lakh are classified as microfinance loans.
- Provide flexibility in repayment periodicity for microfinance loans as per borrower requirements.
- Avoid linking microfinance loans with any lien on borrower deposit accounts.
- Align with any common framework developed by SROs or industry associations for income assessment.
Who it affects
All Commercial Banks (including Small Finance Banks, Local Area Banks, RRBs) excluding Payments Banks, All Primary Urban Co-operative Banks, State Co-operative Banks, District Central Co-operative Banks, All NBFCs including Microfinance Institutions and Housing Finance Companies
What is the definition of a microfinance loan under the new directions?
A microfinance loan is a collateral-free loan given to a household with annual income up to ₹3 lakh. The household includes husband, wife, and unmarried children. The loan must not be linked with a lien on the borrower's deposit account.
When do these directions take effect?
The directions are effective from April 1, 2022, except for certain stipulations in paragraphs 5.3 and 9.3 which may have later effective dates.
Do these directions apply to Payments Banks?
No, Payments Banks are explicitly excluded from the applicability of these directions.