RBI introduces no interest cap on microfinance loans; annual income eligibility increased to Rs 3 lakh

Mumbai, Mar 15 (KNN) The Reserve Bank of India (RBI) has removed the interest rate cap on microfinance loans and increased the eligibility criteria to households having an annual income of upto Rs 3 lakh.

The central bank has also asked all lenders to put in place a board-approved policy on pricing.

To keep a check on lenders not charging exorbitant rates, RBI said it will scrutinise the rates charged and has asked the lenders to put in place a ceiling on pricing of loans and related fees.

It has directed microfinance institutions (MFIs) to disclose pricing-related information to a prospective borrower in a standardised simplified fact sheet.

Further, the RBI has asked the lenders to prominently display the minimum, maximum, and average interest rates charged on loans in all its offices, in the literature issued by them, and details on its website.

The definition of microfinance loans has also been revised with by increasing the loan cap, as collateral-free loan given to a household having annual household income up to Rs 3 lakh will now be considered as microfinance loan.

Currently, a microfinance borrower is identified by the annual household income not exceeding Rs 1.25 lakh for rural and Rs 2 lakh for urban and semi-urban areas. (KNN Bureau)