Plan­ning body panel seeks RBI in­ter­ven­tion to end MFI cri­sis

The Pak Banker - - Company& -

NEW DELHI: Plan­ning Com­mis­sion deputy chair­man Mon­tek Singh Ah­luwalia has writ­ten to Prime Min­is­ter Man­mo­han Singh, seek­ing in­ter­ven­tion by the Re­serve Bank of In­dia (RBI) to stave off the snow­balling cri­sis that In­dia's mi­cro­fi­nance in­dus­try is bat­tling in Andhra Pradesh, even as the south­ern state is set to in­tro­duce a Bill in the win­ter ses­sion of the state assem­bly to curb al­leged ex­ploita­tion of ru­ral bor­row­ers by mi­cro­fi­nance in­sti­tu­tions (MFIs).

A PTI re­port on Wed­nes­day, quot­ing a se­nior bu­reau­crat, said there will not be any cap on in­ter­est rates charged by MFIs, but the or­di­nance, which was pro­mul­gated in Oc­to­ber, will be "in­tro­duced as it is".

"There will not be any mod­i­fi­ca­tion in the Bill. We are very firm on curb­ing the co­er­cive meth­ods in re­cov­er­ies," the state's prin­ci­pal sec­re­tary (pan­chayat raj and ru­ral devel­op­ment) R. Subrah­manyam, told PTI.

Ah­luwalia, who wrote to the Prime Min­is­ter in late Novem­ber, has de­scribed the or­di­nance as "dra­co­nian" and said: "If im­ple­mented as it stands, it will lead to the col­lapse of the MFI sec­tor."

The state pro­mul­gated the or­di­nance on 15 Oc­to­ber and the def­i­ni­tion of MFIs in the or­di­nance not only ex­plic­itly refers to non-bank­ing fi­nan­cial com­pa­nies (NBFCs) reg­u­lated by RBI, but also all com­pa­nies en­gaged in any busi­ness of fi­nance to low-in­come house­holds. This means it ef­fec­tively cov­ers all com­mer­cial banks, since banks are com­pa­nies un­der the Com­pa­nies Act, 1956, and they lend money to low-in­come clients.

Ac­cord­ing to Ah­luwalia, since MFIs are NBFCs, and reg­u­lated by RBI, "the state govern­ment should not have acted in the man­ner it did" and "the lead in tak­ing cor­rec­tive steps should have been taken by RBI".

Stat­ing that the fi­nan­cial sec­tor "can­not be made hostage to ar­bi­trary ad­min­is­tra­tive ac­tion", Ah­luwalia said, "we should urge RBI to step for­ward as the sole agency to reg­u­late and con­trol MFIs."

RBI deputy gover­nor Su­bir Gokarn on Tues­day said MFIs are un­der stress, but there is no threat to the sys­tem. On the side­lines of a pro­gramme on fi­nan­cial in­clu­sion, or­ga­nized by Kolkata-based United Bank of In­dia, Gokarn told re­porters MFIs play an im­por­tant role in the bank­ing reg­u­la­tor's fi­nan­cial in­clu­sion strat­egy.

RBI has con­sti­tuted a panel, headed by char­tered ac­coun­tant Y.H. Malegam, to look into these is­sues and the panel is ex­pected to sub­mit its re­port by end of Jan­uary. -PB News

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