FRAMEWORK FOR MICROFINANCE LOANS
1. Definition
A microfinance loan is defined as a collateral-free loan given to a household having annual household income up to Rs 3,00,000.00 (Rupees three lacs only). For this purpose, the household shall mean an individual family unit, i.e., husband, wife, and their unmarried children.
All collateral-free loans, irrespective of end use and mode of application/ processing/ disbursal (either through physical or digital channels), provided to low-income households, i.e., households having annual income up to Rs 3,00,000.00 shall be considered as microfinance loans.
2. Assessment of Household Income
Household income shall be assessed based on actual income earned over a period of a minimum of one year.
Bank’s guidelines on the generation of Credit Information Reports (CIRs) are applicable to Microfinance Loans. Acceptable CRIF High Mark score shall be 600 and above (or equivalent) or -1 or First time/CRIF score code between (12-18). Borrowers are also eligible.
For customers having No Score or First Time Borrower or CRIF score code between (12-18), they are also eligible.
Bank will mandatorily submit information regarding household income to the Credit Information Companies (CICs).
3. Limit on Loan Repayment Obligations of a Household
Deductions on account of repayment of monthly loan obligations of a household as a percentage of the monthly household income shall be subject to a limit of a maximum of 50% of the monthly household income.
Existing loans can be paid off with the proceeds of Microfinance loans. However, in such cases, new loans shall be provided to these households till the prescribed limit of 50% is complied with.
Special covenants:
In case of JLG/SHG, Agri Mudra, and other loans where household income will be up to Rs.3.00 lakh will be categorized as Microfinance loan.
4. Submission of Information to Credit Information Companies (CICs)
Bank shall mandatorily submit information regarding household income to the Credit Information Companies (CICs) for all Microfinance borrowers.
5. Other Eligibility Criteria
5.1 - Maximum Repayment: 36 Months
5.2 - Maximum Loan Amount: Rs 3,50,000.00
For First Time Borrower: Maximum Loan Rs 1,00,000.00
Other Charges: No other charges except processing, documentation & CRIF charges (as applicable).
Lending Power: As per the lending power circulated by the Risk Management Department, Head Office from time to time.
6. Insurance
The microfinance loan is to be covered by the Loan Protector Scheme against accidental death, permanent or partial disability, accidental hospitalization, etc., with Bank’s channel partners.
7. Pricing of Loans
Rate of Interest of Microfinance Loans shall be linked to MCLR.
Amount |
Rate of interest* |
Total fund based exposure up to Rs.50,000.00 |
One year MCLR+1.90% |
Total fund based exposure more than Rs.50,000.00 & up to Rs.2.00 Lacs |
One year MCLR+2.40% |
Total fund based exposure more than Rs.2 lacs & up to Rs. 3.50 Lacs |
One year MCLR+3.95% |
*As circulated by Risk Management Department for all other Priority Sector Advances subject to revision from time to time.
Bank shall charge the following service charges from Microfinance borrowers:
| Nature of Loan | Amount | Processing Charge | Documentation |
|---|---|---|---|
| Microfinance Loan | For loan up to Rs.25,000.00 | NIL | NIL |
| For loan above Rs.25,000.00 | 1% of limit sanctioned Minimum Rs.600/- | Rs.350/- per lakh minimum Rs.350/- |
8. Conduct towards Microfinance Borrowers
Fair Practice Code (FPC) shall be displayed by the Bank in all branches and on the website.
A loan card incorporating the following is to be provided to each of the Microfinance borrowers:
- a) Information which adequately identifies the borrower.
- b) Simplified factsheet on pricing.
- c) All other terms and conditions attached to the loan.
- d) Acknowledgements by the Bank of all repayments including installments received from the borrower and the final discharge.
- e) Details of the local address of the Bank, Banking Ombudsman detail, Bank’s available portals detail, detail of the local nodal officer, including the name and contact number of the nodal officer of the Bank. The standard format for the same shall be provided by the Agriculture Department.
All entries in the loan card should be in a language understood by the borrower.
9. Guidelines related to Recovery of Loans
Branches shall engage with the borrowers facing repayment-related difficulties, i.e., borrowers classified as SMA, and provide them necessary guidance about the recourse available.
Recovery shall be made at a designated/central designated place decided mutually by the borrower and the Bank. However, Branch Officials shall make recovery by visiting the place of residence or work of the borrower if the borrower fails to appear at the designated/central designated place on two or more successive occasions. The mutually decided place of recovery should be mentioned in the terms and conditions of sanction.
Bank or its agent shall not engage in any harsh methods towards recovery. Without limiting the general application of the foregoing, the following practices shall be deemed as harsh:
- a) Use of threatening or abusive language
- b) Persistently calling the borrower and/or calling the borrower before 9:00 a.m. and after 6:00 p.m
- c) Harassing relatives, friends, or co-workers of the borrower
- d) Publishing the name of borrowers
- e) Use or threat of use of violence or other similar means to harm the borrower or borrower’s family/assets/reputation
- f) Misleading the borrower about the extent of the debt or the consequences of non-repayment.
The details of the grievance redressal mechanism as per guidelines issued by the Bank shall be provided to the borrower. The details of this mechanism shall be provided to the borrower at the time of loan disbursal.
10. Engagement of Recovery Agents
Recovery agents shall mean agencies engaged by the Bank for the recovery of dues from its borrowers and the employees of these agencies.
The recovery agents engaged to carry out verification of the antecedents of their employees, which shall include police verification. Bank shall decide the periodicity at which re-verification of antecedents shall be resorted to.
To ensure due notice and appropriate authorization, the Branch shall provide the details of recovery agents to the borrower while initiating the process of recovery. The agent shall also carry a copy of the notice and the authorization letter from the Bank/Branch along with the identity card issued to him by Bank or the agency.
11. Role of IT Department
- a) Rule based applications for automation of appraisal and sanction.
- b) MIS for disbursements & collection, repayments due and recoveries made.
- c) Creation of fresh product codes as per approved policy.
- d) Calculation of income sharing on monthly basis.
- e) Other IT Support .
Annexures
