Lending to microfinance institutions (MFIs) is getting more and more riskier for banks with increasing chances of the loans turning bad. In order to mitigate this risk, banks have sought for approval from banking and monetary regulator, Reserve Bank of India to allow for some rescheduling of their exposures in this field.

RBI had recently given permission to banks to reschedule their exposure with airline companies.

"The Indian Banks Association will shortly come up with concrete proposals for the measures to be taken in the interim, for consideration of the Reserve Bank of India," the RBI said in a meeting with bankers on their caution in preventing NPA taint.

"Banks informed that collections by MFIs in Andhra Pradesh have deteriorated considerably and there were some incipient signs of the contagion spreading to other states. As far as at the banks' exposures to MFIs were concerned, the MFIs had so far been able to meet their repayment obligations to the banks till November 2010. However, going forward, this may be a matter of concern," the RBI said.

"The banks stressed on the need to work out an interim arrangement involving, inter alia, rescheduling of exposures to MFIs subject to certain covenants such as MFIs agreeing to reduce their leverage and growth projections," it said.