RBI's New Rules For Micro Lenders Will Assist Widen Profits: Crisil
Removing the interest margin cap on loans, the biggest change in regulation will help NBFC MFIs (non-banking finance company microfinance institutions) adopt a risk-based pricing approach and hence support profitability, the report by Crisil Ratings said.
"Specifically, this will benefit mid sized entities which were handicapped by the lending rate cap linked to the base rate, given their relatively higher borrowing cost, and those with rural focus, where competition is less and borrowers are relatively less sensitive to interest rates", it said.
The last two years have been extremely challenging for microfinance lenders, as they grappled with high credit costs
The move to increase the permissible household income to Rs.3 lakh per annum and the increase in limit of non-microfinance loans to 25 percent of total assets will help increase the addressable market for such entities, it said.
"The last two years have been extremely challenging for microfinance lenders, as they grappled with high credit costs. The changes announced will help NBFCMFIs adopt risk-based pricing and improve their profitability expand their addressable market and also address concerns on over indebtedness of borrowers" the agency's Deputy Sitaraman said.