In a welcome move, the Reserve Bank of India (RBI) has extended its surveillance over loans given by non-banking financial companies (NBFCs) to the micro finance sector by issuing directions for a new category of NBFCs. The directions, issued on 2 December, are titled Non-Banking Financial Company – Micro Finance Institutions, and the institutions will be known as NBFC-MFIs.
The main highlights of the directions are as follows:
- An NBFC-MFI is to be non-deposit taking NBFC with a minimum net owned fund of ₹50 million (US$930,000, or ₹20 million if it is registered in the northeastern region) and should have not less than 85% of its net assets categorized as “qualifying assets”. An NBFC which does not satisfy both these conditions is not allowed to extend loans to the micro finance sector in excess of 10% of its total assets.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
