RBI Panel To Study MFIs

Union Minister of State for Finance Namo Narain Meena on Tuesday told Rajya Sabha that the Reserve Bank of India (RBI) had constituted a sub-committee of the Central Board of Directors to look into the various issues regarding the interest rates charged by microfinance institutions.

In a written reply to a question, Meena revealed that the Small Industrial Development Bank of India (SIDBI) had reported that SKS Microfinance Ltd. (SKS), the only microfinance institution in India to be listed on the Bombay Stock Exchange/National Stock Exchange (BSE/NSE) had gone for an initial Public Offering (IPO) in August 2010.

Subsequent to the IPO, the board of SKS had taken a decision to terminate the services of its CEO Suresh Gurumai.

The MoS clarified that while the RBI did not regulate the interest rates charged by microfinance institutions, it had issued instructions on a fair practice code to be adhered to by all Non-Banking Financial Companies (NBFCs). The code dictates that the NBFCs should not charge exorbitant rates of interest and resort to undue harassment persistently that included bothering the borrowers at odd hours, use of muscle power for recovery of loans and other arm-twisting measures.

The boards of NBFCs were advised to lay out appropriate principles and procedures and determine interest rates, processing and other charges.

Meena added that the government of India had in September, 2010, written to all Chief Executives of public sector banks advising them to ensure that the rates of interest charged by the MFIs to the eventual beneficiaries were reasonable.

The MoS stated that YH Malegam, a senior member on the Central Board of Directors of the Reserve Bank of India, will chair the sub-committee. The sub-committee will submit its report in 3 months.

The department of financial services proposes to introduce the Microfinance Development and Regulation Bill, 2010, after taking into account the views of RBI and the Malegam Committee recommendations.

Courtesy: INN