**Policy Summary:**
This policy, reference number RBI/2016-17/219 DNBR.CC.PD.No. 084/22.10.038/2016-17, issued by the Reserve Bank of India (RBI) on February 2, 2017, modifies existing guidelines on the pricing of credit for Non-Banking Financial Company-Micro Finance Institutions (NBFC-MFIs). The policy revises the timeframe for calculating the average interest rate on loans. Previously, NBFC-MFIs were required to ensure that the average interest rate on loans during a financial year did not exceed the average borrowing cost during that year plus the margin, within a prescribed cap. This policy now mandates that NBFC-MFIs ensure that the average interest rate on loans *sanctioned* during a *quarter* does not exceed the average borrowing cost during the *preceding* quarter plus the margin, within the prescribed cap. This change is being implemented because the RBI publishes the average base rate of banks on a quarterly basis. The Master Directions dated September 01, 2016, pertaining to both Systemically Important and Non-Systemically Important NBFCs, are being updated to reflect these changes. C.D. Srinivasan, Chief General Manager, is the point of contact for this policy.
Key Entities Referenced
RBI: Reserve Bank of India, the central bank of India.
NBFCMFIs: Non-Banking Financial Company - Micro Finance Institutions
Master Direction-Non-Banking Financial Company-Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016: A regulatory document issued by the Reserve Bank of India pertaining to non-banking financial companies.
Master Direction-Non-Banking Financial Company-Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016: A regulatory document issued by the Reserve Bank of India pertaining to systemically important non-banking financial companies.
C.D.Srinivasan: Chief General Manager at Reserve Bank of India
RBI/2016-17/219
DNBR.CC.PD.No. 084/22.10.038/2016-17 February 02, 2017
To
All NBFC-MFIs,
Madam/Sir,
Review of Guidelines on “Pricing of Credit”
As per extant instructions on “Pricing of Credit” issued to NBFC-MFIS under “Master
Direction-Non-Banking Financial Company-Non-Systemically Important Non-Deposit
taking Company (Reserve Bank) Directions, 2016” and “Master Direction - Non-Banking
Financial Company-Systemically Important Non-Deposit taking Company and Deposit
taking Company (Reserve Bank) Directions, 2016” dated September 01, 2016, it has
been advised that-
“NBFC-MFIs shall ensure that the average interest rate on loans during a financial year
does not exceed the average borrowing cost during that financial year plus the margin,
within the prescribed cap.”
2. Since average base rate of banks is published by RBI on quarterly basis, it has been
decided to modify the above mentioned instructions as under:
“NBFC-MFIs shall ensure that the average interest rate on loans sanctioned during a
quarter does not exceed the average borrowing cost during the preceding quarter plus
the margin, within the prescribed cap.”
3. The “Master Direction -Non-Banking Financial Company-Non-Systemically Important
Non-Deposit taking Company (Reserve Bank) Directions, 2016” and “Master Direction -
Non-Banking Financial Company-Systemically Important Non-Deposit taking Company
and Deposit taking Company (Reserve Bank) Directions, 2016” dated September 01,
2016 are being updated to reflect the changes.
Yours faithfully,
(C.D.Srinivasan)
Chief General Manager