MFIs seek bet­ter pro­vi­sion­ing norms

Banking Frontiers - - News / Mfi -

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.

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