RBI lowers qualifying asset criteria for NBFC-MFIs to 60% from 75%

The Reserve Bank of India (RBI) Friday lowered the minimum amount of eligible microfinance loans specialized lenders must hold on their books, allowing microfinance-NBFCs to further diversify their asset base.

In a notification Friday, the central bank said qualifying assets (those meeting the definition of microfinance loans) of NBFC-MFIs must constitute a minimum of 60% of the total assets (netted off by intangible assets), on an ongoing basis.

The earlier threshold was 75%.

“If an NBFC-MFI fails to maintain the qualifying assets as aforesaid for four consecutive quarters, it shall approach the Reserve Bank with a remediation plan for taking a view in the matter,” the RBI said.

The central bank also said that ‘qualifying assets’ of NBFC-MFIs has been aligned with the definition of ‘microfinance loans’.

As per RBI rules, microfinance loan is defined as a collateral-free loan given to a household having annual household income up to Rs 3,00,000.

“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, Chief Executive Officer, CreditAccess Grameen Ltd.

Reduction in the qualifying asset criteria for NBFC-MFIs is expected to improve loan diversification of lenders, thereby augmenting their credit risk profile. It will also enable them to meet other credit requirements of their end borrowers, according to A M Karthik, Senior Vice President & Co-Group Head, Financial Sector Ratings, ICRA.