Non-review of MFI's programs by banks draw RBI's ire

The Reserve Bank of India is pulling up banks for not adhering to best practices and slacking on their role of reviewing microfinance institutions’ operations after extending credit support, reports The Hindu Business Line. The newspaper is quoted as saying that the apex bank sent a circular to the public sector lenders, mentioning that they were “not engaging themselves in capacity building and empowerment of the groups to the desired extent.''  At present, MFIs are disbursing loans within 10-15 days of the formation of new groups. However, the practice is to take six-seven months of group formation or nurturing/ hand-holding. “As a result, cohesiveness and a sense of purpose were not being built up in the groups formed by these MFIs,” the RBI is reported to have said in the paper.

Finmin weighs extension for Union Bank, LIC chairmen

After putting new SBI and a new SEBI chiefs at helm, the finance ministry is currently evaluating whether to give extension to the tenures of LIC chairman T.S.Vijayan and Union Bank of India CMD M.V.Nair - both will be completing their respective five-year tenure but will be having residual services to reach 60. Vijayan, who recently had to do a lot of firefighting after Central Bureau of Investigation arrested officials from LIC's investigation department and LIC Housing Finance CEO R.R.Nair in bribe-for-loans cases, will be completing five years in April but will have two more years to reach the superannuation age of 60. Similarly, Nair will ending his five-year tenure at UBI in March but will have one more year to reach the retirement age of 60. It has not been an easy decision for the finance ministry to decide whether to go for extension in both Vijayan and Nair's cases as not giving extension after 'a tenure of five years' has become a parctice for so many other important appointments in financial sector and other public sector enterprises. Usha Thorat, Deputy Governor, Reserve Bank of India, Sarthak Behuria, CMD, India Oil, Ashok Sinha, CMD, Bharat Petroleum Company were earlier denied extension though all of them had residual services to reach 60. Sources point out that initial round of discussion among the top official of the ministry hasn't found favour for giving extension to both Vijyan and Nair.. But finance minister Pranab Mukherjee is yet take a call. There are indications that Vijayan may be rehabilitated in any other top posts like UTI Chief which has fallen vacant after U.K.Sinha's appointment as SEBI Chairman or a member in the Securities Appellate Tribunal. Similarly, Nair may be shifted as the executive chairman of Star Union Life Insurance, a life insurance joint venture among Bank of India, Union Bank of India and Japanese major Dai-ichi. The contenders for the LIC chiefs in terms of seniority are DK Mehotra, Thomas Mathew, AK Dasgupta - all are currently LIC's three managing directors. Finance ministry sources point out there will be a decision about the LIC chief soon. Meanwhile, the ministry is also in the process of filling up posts of UTI chairman, Nabard chairman, CMDs of Sidbi and ECGC. For top posts of Nabard, the name of Prakah Bakshi, one of the junior most executive directors in Nabard is doing the round, sources point out. If selected Bakshi will be superseding many of his seniors including SK Mitra who is the senior most ED in the organisation. Incidentally, KG Karmakar, managing director of Nabard who has almost completed five years in the post was excluded from the exercise to choose chairman as he has one and half years of service left, falling short of the two year of residual service norms for selection of Nabard chief.

April 1 date hint for MFI interest rate cap

The Reserve Bank of India may impose an interest rate cap on loans by microfinance institutions (MFIs) from April, in line with the recommendations of the Malegam committee last month. According to RBI Deputy Governor K.C.Chakrabarty, the apex bank has commenced talks with the stakeholders on the implementation of the Malegam proposals. “Some part of the report such as interest rate will be applicable from April 1,” he said. He, however, said officials at the RBI were still discussing the proposals and no binding decision had been taken it. The committee, headed by Y.H. Malegam, proposed the capping of interest rate charged by the MFIs at 24 per cent. Its recommendations followed a regulation by the Andhra Pradesh government restraining the MFIs from adopting strong-arm tactics to facilitate loan recovery. It also stipulated that the loan repayment cycle should at least be monthly from the earlier practice of weekly collections.