Mumbai, Dec. 22: Concerned over the possibility of repayment default by microfinance institutions to banks, the RBI on Wednesday asked the lenders to maintain funding lines to MFIs to prevent the problem from fanning out of Andhra Pradesh.
“The RBI sensitised the banks to the need to maintain funding lines to MFIs on merits to prevent contagion,” the central bank said in a release after meeting bankers and SIDBI on the situation in the microfinance sector in Andhra Pradesh and other states.
The bankers informed the RBI that collections by MFIs in AP have deteriorated considerably and there were some incipient signs of the problem spreading to other states. “All of us understand the importance of the MFI sector and do not want it to fail,” IBA chief executive, Mr K. Ramakrishnan, said.
The banks urged the RBI to work out an arrangement to deal with the problem. They suggested that the banks be allowed to resc-hedule exposures to MFIs and want regulatory concessions to prevent contagion from spreading to other states.