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RBI removes lending rate cap on NBFC-MFIs, changes microfinance definition

The Reserve Bank of India has removed the interest rate ceiling on loans offered by non-bank microfinance institutions (NBFC-MFIs) while making a few other changes to put all microfinance lenders including banks, small finance banks, NBFC and not-for-profit companies on a uniform regulatory platform.
The RBI also raised the annual household income to Rs 3 lakh for a collateral-free loan to be classified as microfinance loan. So far, such loans given to households with an annual income of Rs 1.25 lakh in rural India and Rs 2 lakh in urban and semi-urban areas were classified as microfinance loans.
The margin cap on lending rates was introduced a decade back to stop NBFC-MFIs from charging usurious rates. The RBI now offers freedom in fixing board-approved lending rates, but warned that those should not be usurious and that the rates would come under its supervisory scrutiny. The changes announced on Monday will come into effect on 1 April, 2022.

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