RBI keeps lending rate ceiling for MFIs unchanged at 27.75% for second quarter

KOLKATA: The Reserve Bank of India has kept the lending rate ceiling for micro finance companies unchanged at 27.75% for the July to September quarter.

This will be the highest rate MFIs can charge to their borrowers in the next quarter. They may have to charge less if their cost of funds is lower than 17.75%.

About 48 micro lenders that are registered with RBI as non banking finance companies follow this lending rate calculation. This set of lenders are known as NBFC-MFIs.

The central bank has arrived at the maximum rate by taking the average of base rates of the top five commercial banks and multiplying it by 2.75 times.

The applicable average base rate is arrived at 10.09%, unchanged from the March average.

RBI revises the average base rate on the last working day of every quarter for the purpose of calculating interest rates to be charged by NBFC-MFIs to borrowers in the ensuing quarter.

It prescribed the formula in February by linking it to their actual cost of funds. This way, MFI observers said that the central bank tried to remove the anomalies in MFIs’ pricing mechanism existed before.

RBI’s rate prescription says that MFIs with Rs 100 crore loan portfolio should arrive at the lending rate by adding their cost of funds to a maximum 10% margin, or 27.75% at suggested by the central bank, whichever is lower.

The banking regulator said the margin cap may not exceed 10% for large MFIs with loan portfolios exceeding Rs 100 crore. For others registered micro lender, the margin cap will be 12% from April this year. At present, the margin cap is fixed at 12% for all NBFC-MFIs.