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NBFC-Microfinance Institutions -Update on Regulatory Changes

In its monetary policy announcement on April 07, 2015, the Reserve Bank of India (RBI) provided a

boost to micro-finance institutions (MFIs) through an upward revision in borrowing limits for an

individual, income limits of borrowers and disbursement amount. The increase in the limit was

based on the recommendations by the Nachiket Mor Committee on Comprehensive Financial

Services for Small Businesses and Low Income Households. Detailed guidelines in this regard are

expected to be issued shortly by RBI.

Table 1 –Change in Lending Norms

Existing Norms Revised Norms Total Indebtedness Rs.50,000 Rs.1,00,000* Household Annual Income

Rural – Rs.60,000 Urban & Semi-urban – Rs.1,20,000

Rural – Rs.1,00,000 Urban & Semi-urban – Rs.1,60,000

Loan Ticket Size 1st Cycle – Rs.35,000 Subsequent Cycles – Rs.50,000

1st Cycle – Rs.60,000 Subsequent Cycles – Rs.1,00,000

*Educational and medical expenses not to be included Indebtedness = Total outstanding debt of individual borrower We believe that RBI has revised the lending norms for the MFI sector as, post Andhra Pradesh (AP)

crisis in 2010 and Malegam Committee Report on NBFC-MFI in 2011, the sector has evolved with the

advent of credit bureaus in the sector and subsequent control over asset quality (30+DPD of around

0.3% as on December 31, 2014). The stabilization of the regulatory regime has led to a renewed

interest from both domestic and foreign funds in the sector. In recent past the sector has witnessed

strong capital inflows.

Table 2 - Details of recent capital infusion in MFI sector:

Date MFI Amount (Rs. Crore)

Mar-2015 Arohan Financial Services Pvt. Ltd. 60 Mar-2015 Ujjivan Financial Services Pvt. Ltd. 600 Dec-2014 Utkarsh Micro Finance Pvt. Ltd. 135 Nov-2014 Janalakshmi Financial Services Pvt. Ltd. 610 Nov-2014 Equitas Holdings Pvt. Ltd. 325 Jul-2014 RGVN (North East) Microfinance Ltd. 42 Jun-2014 Suryoday Microfinance Pvt. Ltd. 27 May-2014 SKS Microfinance 400 May-2014 Grameen Financial Services Pvt. Ltd. 80 Apr-2014 Satin Creditcare Network Ltd. 28

NBF

C-M

FIs

April

09,

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NBFC-MFIs

NBFC-MFIs – Update on Regulatory Changes 2

As on December 31, 2014 gross loan outstanding for the sector was Rs.31,450 crore, registering 13% growth

during nine months of FY15 (i.e., from April to December 2014). During the same period, number of

borrowers grew by just 3% to 2.87 crore as on December 31, 2014. Average loan outstanding per borrower

increased from Rs.10,000 as on March 31, 2014 to Rs.11,000 as on December 31, 2014 (Source: MFIN).

The earlier announced Microfinance Bill is likely to be merged with MUDRA Bill wherein it is proposed that the

newly launched MUDRA bank will act as regulator for MFI sector. There will be further clarity on the

regulatory aspect post MUDRA Bill is cleared in the parliament.

Conclusion:

We believe that the above proposed regulatory changes would aid in the growth of the loan portfolio of MFIs

as it widens the base of borrowers and significantly increases the addressable market size. Furthermore,

resources are not seen as a major constraint given the significant capital infusion in recent times. If MFIs

manage to control the asset quality of their portfolio while adhering to new guidelines, the profitability of the

sector is expected to improve with the benefits of operating leverage.

Disclaimer This report is preparedby the Banking Division of Credit Analysis & Research Limited [CARE Ratings]. CARE Ratings has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Ratings is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE Ratings (including all divisions) has no financial liability whatsoever to the user of this

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Contact: Vishal Sanghavi Abhishek Gupta Sr. Manager Manager vishal.sanghavi@careratings.com abhishek.gupta@careratings.com 91-022-67543430 91-022-67543558