MICROCAPITAL BRIEF: RBI Raises Caps on Microfinance Loan Size, Microborrower Income

The Reserve Bank of India (RBI), India’s central banking authority, recently raised the income limit for households to be eligible for microfinance loans from INR 100,000 (USD 1,400) to INR 125,000 (USD 1,760) in rural areas and from INR 160,000 (USD 2,250) to INR 200,000 (USD 2,800) in urban areas. RBI also increased the lending limit for eligible borrowers to INR 124,000 (USD 1,750).

The intent of changing the eligibility limits, which were last revised in 2015, is to expand the reach of the microfinance industry and increase credit flow. A statement from RBI cites “the important role played by MFIs [microfinance institutions] in delivering credit to those in the bottom of the economic pyramid and enabling them to play their assigned role in a growing economy.”

In another effort to promote growth, RBI reduced the rate at which it lends money to commercial banks from 5.40 percent to 5.15 percent. This comes as it reduced its growth forecast from 6.9 percent to 6.1 percent for the fiscal year 2020. According to RBI Governor Shaktikanta Das, RBI will “continue with an accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target,” which is below 4 percent.

Established in 1935, RBI performs consolidated supervision of commercial banks, non-banking finance companies (NBFCs) and other financial institutions. It also manages accounting standards, resolves cases of banking fraud, monitors non-performing assets and supervises the rating model for the banking sector. As of 2018, RBI reported total reserves of INR 28.4 trillion (USD 410 billion).

By Anna Gravois, Research Associate

Sources and Additional Resources

RBI statement on regulatory policies
https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR86610CEA88E0A534A06B37B56D2BB83E102.PDF

RBI statement on repo rates
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT7 5 C8E7505CEC544E269E67F470A2B6D563.PDF

RBI homepage
https://www.rbi.org.in

LiveMint article on lending cap
https://www.livemint.com/industry/banking/regulator-eases-limits-for-microcredit-beneficiaries-11570208261058.html

LiveMint article on interest rate cut
https://www.livemint.com/industry/banking/rbi-goes-for-a-fifth-straight-rate-cut-11570210260687.html

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