New Delhi: The Reserve Bank of India (RBI) on Tuesday said that it would monitor the micro-finance institutions (MFI) charging high rate of interest.

The RBI also said that loans extended by banks to MFIs from April 1 will be classified as priority sector lending.

“The recommendations made by the Malegam Committee for the micro-finance sector have been broadly accepted. Bank loans to all MFIs, including non-banking finance companies (NBFCs) working as MFIs on or after 1 April 2011, will be eligible for classification as priority sector loans,” RBI governor D Subbarao said while announcing the 'Monetary Policy’ for 2011-12'.

RBI has broadened some of the parameters, such as increasing the annual income limits for eligible households to Rs 60,000 for rural and Rs 1.20 lakh for urban and semi-urban for seeking households.  Apart from it, the tenure of loan has been fixed to not to be less than two years. Loans must be reimbursed on weekly, monthly and yearly basis.

The limit of interest charged by MFI will also be decided by the RBI.

Several questions were raised over the functioning of MFIS. AFTER Andhra Pradesh government brought an ordinance against MFI. Situation turned worse after banks stopped giving them loan and customers refused to return their loan to MFIs.

Following the outcry, RBI set up the Malegam panel to look into the loopholes.