MFIs seek better provisioning norms
Microfinance institutions have sought easier provisioning norms in their struggle to recover loans following demonetization. Microfinance Institutions Network has approached the Reserve Bank of India to relax the provisioning norms on loans that turned bad after demonetization for 3 years so that they can meet the minimum capital adequacy requirement of 15%. When an MFI makes a profit, it is ploughed back into the balance sheet, leading to higher CAR. In case there is a loss due to higher provisioning and the loan portfolio continues to increase, CAR starts declining. RBI norms specify that MFIs need to set aside 50% of a loan that is overdue between 90 and 180 days to cover the risk of default. For loans that are overdue for more than 180 days, they need to set aside the entire loan amount.