YES Bank's decision to call off its lendings to microfinance institutions (MFIs) has disappointed the latter and they are planning to legal action against the bank's move.

However, before hitting the court doors, they intend to write to the bank to withdraw its circular regarding the loan recall, said a chief finance officer of an MFI.

A letter has been sent by the Microfinance Institutions Network (MFIN), the representative body of MFIs to the Indian Banks Association and the Reserve Bank of India on the issue.

"First, we will wait for the official response from YES Bank to our letter. If there is no response, the MFIs will move the ombudsman individually. The MFIN will also write to them," said a senior official of Spandana, an MFI based in Andhra Pradesh.

"Instead of using the term ‘recall', YES Bank has used the phrase, ‘reduction in facility amount''to safeguard itself. However, this amounts to recall in all senses," said an MFI official.

"We will take up the matter with the ombudsman. The MFIs have not defaulted, so the action taken by YES Bank is completely irresponsible and hard," said Alok Prasad, CEO, MFIN.