The Reserve Bank of India (RBI) has allowed banks certain relaxations in its restructuring guidelines in order to enable them to extend credit support to micro finance institutions (MFIs).
RBI said banks could now classify restructured loans to microfinance companies as a 'special regulatory asset,' a move aimed at easing liquidity constraints in the micro finance sector.
These accounts will, however, have to be standard at the time of restructuring even if they are not fully secured, RBI said in a notification on its website.
According to RBI, "The problems afflicting the MFI sector were not necessarily on account of any credit weakness per-se but were mainly due to environmental factors."
RBI said the relaxation is purely a temporary measure and would be applicable to bank loans to MFIs restructured by banks up to 31 March 2011.
The central bank has also advised banks that they should try to recycle the collections to MFIs so as to ensure that the intended 'holding on' operation is successful.