Two suicides in recent months after banks refused to restructure .
In absolute terms, close to 9.2 million customers (almost equal to Mumbai's suburban population) have defaulted on loan repayment. Microfinance institutions currently have around 32 million clients in the country.
In December 2016, RBI had granted additional 60 days for repayment of certain loans
The strict curbs, including a curfew from 8 pm till 7 am, and prohibitory orders during the daytime on weekdays came into force from Monday in the state.
Microfinance companies have been facing a crisis after a crackdown by the Andhra Pradesh government last year in response to allegations they were charging high rates and using coercive recovery practices.
The new regulations by the Reserve Bank of India (RBI) on microfinance have prompted MFIs to go for a makeover, in order to cope with the new limitations imposed on them.
The government has released the draft Micro Financial Sector (Development and Regulation) Bill, 2011, which seeks to make it mandatory for all microfinance institutions to be registered with the Reserve Bank of India, making it the sector regulator.
The company has appointed P H Ravi Kumar, independent director, as the interim non-executive chairman.
According to a report by rating agency Fitch, different sets of regulations imposed by different regulators may result in an uneven playing field.
A host of companies started the ground work for their banking play.
The finance ministry's plan to offer basic banking licences may find few takers because of doubts over the commercial viability of the proposed business model.
PM's economic advisory council chairman C Rangarajan has asked microfinance institutions (MFIs) to overhaul their "flawed" business model for sustainability.
Some banks, including ICICI, want to restructure securitised advances along with other loans. This is being opposed by Axis Bank, IndusInd Bank and YES Bank.
At Economic Editors' Conference in New Delhi, Finance Minister Pranab Mukherjee said he has suggested to the Andhra Pradesh Government to address some stringent provisions of its recently promulgated ordinance to rein in MFIs.
One of the main criticisms of microfinance institutions one hears is that they charge high interest rates. One reason for this perception is the reference to interest rates as a percentage of the loan amount.
Stung by the controversy over the sudden sacking of the Managing Director at India's largest microfinance institution, SKS Microfinance, lenders have decided to raise corporate governance issues at board meetings of other MFIs.
The Bill - to centrally regulate microfinance institutions (MFIs) - may also cap the rates charged by these institutions or limit margins, that is, the difference between the rate charged from the borrower and the lender's cost of funds.
The sector is in turmoil since the Andhra Pradesh government introduced new legislation to regulate it. The state accounts for a third of MFIs' lending.
Two months before the microfinance sector crisis in October, an internal committee of the Reserve Bank of India (RBI) had warned of possible problems in the sector.
Regulations have sought to address several key concerns.
In the backdrop of questions on functioning of microfinance institutions (MFIs), Chief Economic Advisor to the government of India, Kaushik Basu, has called for regulating MFIs for more transparency in their loan contracts with the beneficiaries. However, he also warned that over-regulation of MFIs could imperil their survival.
Stocks of most non-banking finance companies (NBFCs) were on a crash course on Wednesday, with the Reserve Bank of India excluding loans given to the sector from the priority sector list.
The sub-committee, headed by Y H Malegam, is to make recommendations relating to regulation of microfinance activities of NBFCs, especially with regard to issues impinging on borrowers' interests.
The ensuing liquidity crisis has prompted many MFIs to seek a moratorium on loan repayment to banks.MFIs raise 75-80 per cent of their funds via bank borrowings, 15 per cent from equity and another 10 per cent from other sources like cash securities.
The Bill's 2007 version covered only MFIs not regulated by the Reserve Bank of India.
Sure, a few listings like those of SKS Microfinance and Gujarat Pipavav have seen significant investor interest, but experts say it's too early to signal a primary market revival.
Micro-finance institutions (MFIs) are planning to take legal action against YES Bank's move to recall a part of its loans to them.
S&P Global Ratings on Wednesday said Indian banks face a systemic risk as the second COVID wave will impair the performance of financial institutions in the April-September period. Stating that economic recovery remains highly vulnerable to setbacks due to COVID, particularly if fresh outbreaks trigger new lockdowns, S&P said the banking sector's weak loans will likely remain elevated at 11-12 per cent of gross loans in the next 12 to 18 months. "The second wave has front-ended weakness in asset quality," said S&P Global Ratings Credit Analyst Deepali Seth Chhabria. "Financial institutions face a strained first half amid weak collections and poor disbursements."
Envirofit International, an US-based non-profit organisation, has introduced a range of clean-burning and biomass-based cooking stoves , which are reaching homes in rural Karnataka, Tamil Nadu and Kerala.
Industry experts estimate that demand for loans from the sector outstrips supply by more than $80 billion.
Increased bank interest rates and new capital adequacy norms of the Reserve Bank of India will soon weigh heavily on the poorest of the poor as microfinance institutions are also contemplating raising interest rates.
A liquidity crunch has hit several microfinance institutions with the flow of funds 'temporarily' drying up after the largest MFI lender, ICICI Bank, halted payments in early January.
Industry fears waiver of interest on interest would distort credit culture, may encourage borrowers who can pay to defer repayment.
Addressing a media conference in connection with its forthcoming public issue, V Vaidyanathan, head of retail banking, ICICI Bank, said that the the bank is poised to tap the opportunities available in these two sectors too.
Rating agency ICRA on Wednesday revised down its credit growth outlook for banks to 2-3 per cent for the current fiscal, and said the coronavirus pandemic-driven stress may leave 3.1-3.7 per cent of assets into bad loan list by March.
Fitch Ratings on Monday said the shock to economic activity from the latest wave of COVID-19 pandemic will be less severe than the one in 2020, but recovery is likely to be delayed as economic activity dropped in April-May. The global rating agency said there are growing indications that the latest wave of COVID-19 infections will add to risks among financial institutions (FIs) and anticipates that the Reserve Bank of India (RBI) may introduce additional measures to support the financial sector if indications of economic stress mount.
The party is less forthcoming about who the chief minister will be if it stays in power.
The Reserve Bank of India (RBI) has clarified that loans which have remained standard without any defaults as of March 1, 2020, will be eligible for restructuring under the pandemic-related resolution framework issued in August.
The bank will have around 501 branches.
To help revive the economy battered by COVID-19, Finance Minister Nirmala Sitharaman on Monday announced a slew of measures, including Rs 1.1 lakh crore credit guarantee scheme for improving health infrastructure, and enhancing the limit under the ECLGS by 50 per cent to Rs 4.5 lakh crore for the MSME sector facing liquidity crunch. Sharing the details of stimulus package, the finance minister said this comprises eight relief measures and other eight measures to support the economic growth. She announced Rs 1.1 lakh crore loan guarantee scheme for COVID-affected sectors, including health sector, which includes guarantee cover for expansion or for new projects. Besides, she said, additional Rs 1.5 lakh crore limit enhancement done for Emergency Credit Line Guarantee Scheme (ECLGS) scheme.
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