Banks want RBI to watch MFIs

Fearing a default from Andhra Pradesh-based microfinance institutions (MFIs), whose cash flows have been disrupted by new laws, lenders have asked RBI to ensure stability by bringing the sector under its purview. In a meeting called by the Reserve Bank to discuss funding of MFIs, it asked banks whether the institutions were repaying loans on time and if the end-borrower was suffering because of the credit crunch faced by them. RBI had recently collected data from banks on their exposure to the MFI industry.  Bankers told RBI that although there has not been any major default, lenders are worried about the impact of the new law introduced by Andhra Pradesh that bars them from weekly debt recovery. The state has introduced its own laws even as the central government dithers over a new legislation. The finance ministry has now said it will introduce the bill after taking into account recommendations of an RBI committee headed by Y.H.Malegam, a director on the its board. Bankers fear that in the absence of any regulation, each state government may decide to take matters in its own hands through legislation.