It was observed that some of the NBFC-MFIs were largely acting as the business correspondents of the banks thus subverting the entire premise of the business of a financial institution as provided under the Reserve Bank of India Act i.e., lending from their books.
Besides addressing regulatory arbitrage with NBFCs, computation of microfinance loan portfolio of an NBFC-MFI as a percentage of total assets also ensures that NBFC-MFIs focus on their core business.