NBFC-MFI

  • May 31, 2022
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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NBFC-MFI

Context:

stressed assets of non-banking financial companies- microfinance institutions (NBFC-MFIs) are estimated to have declined to around 14 per cent as of March 2022 from close to 22 per cent in September 2021, helped by revival in the economy and limited impact of the omicron variant, says a report.

NBFC-MFI:

The NBFC-MFI is a non-deposit taking financial company.

Conditions to qualify as NBFC-MFI:

  • Minimum Net Owned Funds (NOF) of Rs. 5 crore.
  • At least 85% of its Net Assets in the nature of Qualifying Assets.
  • The Qualifying Assets are those assets which have a substantial period of time to be ready for its intended use or sale.

The difference between an NBFC-MFI and other NBFC is that while other NBFCs can operate at a very high level, MFIs cater to only the smaller level of social strata, with need of smaller amounts as loans.

“Qualifying assets” are loans that meet below specifications:

  • Loan disbursed by an NBFC MFI to a borrower with a rural household annual income not more than Rs. 1,25,000 or urban & semi-urban household income not exceeding Rs. 2,00,000,
  • Loan amount not more than Rs. 75,000 in the first cycle and Rs. 1,25,000 in subsequent cycles,
  • The borrower does not owe more than Rs.1,25,000 in total. To calculate the total indebtedness of a borrower, any loans taken to fulfill education and medical expenses shall be excluded,
  • For a loan of Rs. 30,000 or more, the duration of the loan should not be less than 24 months, with prepayment without penalty,
  • Loan to be extended without any security or collateral,
  • The loan is repayable on either weekly, fortnightly, or monthly installments, as chosen by the borrower,
  • The aggregate amount of loans, given for income generation, is not less than 50 % of the total loans given by the MFIs. The remaining part of the aggregate amount of loans may be extended for other purposes such as housing repairs, personal expenses, education, medical, or other emergencies,
  • The income derived from the balance of 15% of the Qualifying Assets shall be in accordance with the provisions specified for it.

Stress Resolution Framework 2.0:

Resolution Framework 2.0 announced by the Reserve Bank of India (RBI) in the wake of the second Covid-19 wave. This Framework is to relieve stress faced by most vulnerable categories of borrowers – namely individuals, borrowers and MSMEs.

  • Individuals, borrowers and MSMEs with aggregate exposure up to Rs. 25 crore, who have not availed restructuring under any previous frameworks, but classified as standard on 31 March, 2021, will be eligible to be considered under Resolution Framework 2.0.
  • This can be invoked till September 30, 2021 and will have to be implemented within 90 days after invocation.
  • For individuals and small businesses who have availed restructuring of loans under Resolution Framework 1.0, where moratorium of less than 2 years was permitted, lending institutions can now increase the period and/or extend residual tenure up to a total period of 2 years.
  • In respect of small businesses and MSMEs restructured earlier, lending institutions are now permitted to review working capital sanction limits, as a one-time measure.
NBFC-MFI