RBI reduces qualifying asset threshold for NBFC-MFIs

The Reserve Bank of India (RBI) on Friday reduced the qualifying asset threshold for non-banking financial companies – microfinance institutions (NBFC-MFIs) to 60% from 75%, in a boost to the industry.

Qualifying assets of NBFC-MFIs shall constitute a minimum of 60% of the total assets (netted off by intangible assets), on an ongoing basis. If an NBFC-MFI fails to maintain the qualifying assets as per the threshold for four consecutive quarters, it shall approach the Reserve Bank with a remediation plan for taking a view in the matter, the RBI said in a notification.

This will now help the microfinance sector to diversify and expand its assets and improve the financial position of the MFIs, JiJi Mammen, executive director and CEO of Sa-Dhan, a self-regulatory organisation for the microfinance industry, said.

“I am sure this will help the sector strengthen and provide better services to poor households. It is really great to see this decision on a day when  the monetary policy committee has announced a significant reduction in repo rate and lowering of cash reserve ratio. These steps will help in improving fund availability to the MFIs,” he said.

“This policy shift will enable accelerated diversification within our operations, ensuring balance sheet stability and positioning us for robust cross-cycle earnings,” said Ganesh Narayanan, CEO, CreditAccess Grameen Ltd.

It is a welcome step that will help NBFC-MFIs to comply with the requirement and give some scope for diversification. This decision empowers NBFC-MFIs with greater operational flexibility, enabling them to diversify their portfolio, serve a broader borrower base and structure loans with more adaptive terms, said Jugal Kataria, group controller, Satin Creditcare Network Ltd.

“By easing the norms and allowing flexibility for a temporary dip below the threshold for up to three consecutive quarters, the RBI has not only acknowledged ground realities but also ensured that NBFC-MFIs can maintain healthy liquidity, ” he said.