MFI 24% rate cap from Apr 1

“The Malegam report is at the discussion stage…We have not decided anything yet. However,some part of the report like interest rate will be applicable from April 1,” Chakrabarty said on the sidelines of an event here.

Earlier,RBI governor D Subbaro had said the central bank would conduct a day-long workshop for state government officials to decided about the Malegam Committee recommendations. RBI has already invited public comments on the report,which,among other things,suggested capping interest rate at 24% for loans extended by MFIs.

Chakrabarty said RBI’s move to allow restructuring of MFI accounts had helped prevent the spread of problems in Andhra Pradesh to other states. “A schedule is being worked out and it includes discussions with the state government (in Andhra Pradesh)… A lot of criticism on the panel report that is coming is due to lack of full understanding,” he said. The Malegam sub-committee had actually discussed a lot of the issues that had been criticised during the framing of regulations,Chakrabarty added. The Malegam committee submitted its report to RBI on January 19. These recommendations,the committee said,should be implemented from April 1,2011.

The committee,headed by RBI’s central board director YH Malegam,suggested that small loans cannot exceed Rs 25,000. It also advocated the idea of creating a separate category of non-banking financial companies (NBFC-MFI) for the MFI sector.

RBI constituted the committee in October last year in the wake of allegations of overcharging and coercive recovery practices by MFIs that led to a spate of suicides in Andhra Pradesh,which eventually enacted a special Act to regulate the activities of MFIs.