Calcutta, April 7: The RBI today raised the cap on lending by microfinance institutions (MFIs) to individual borrowers from Rs 50,000 to Rs 1 lakh. The move is aimed at meeting the credit demand in rural and semi-urban region.

The RBI said the revision in the upward limit of total indebtedness of the borrower was necessary in the backdrop of the improvement in the performance of the MFI sector and the recommendations of a panel headed by Nachiket Mor.

The RBI has also proposed an upward revision in the eligible rural and semi-urban annual household income and loan amounts to be disbursed in the first credit cycle and subsequent cycles.

Besides raising the total indebtedness of a borrower, the eligible rural household income limit (of the borrower) has been enhanced to Rs 1 lakh from Rs 60,000. The semi-urban household income limit has been increased to Rs 160,000 from Rs 120,000.

The maximum loan to be disbursed in the first cycle has been raised to Rs 60,000 from Rs 35,000 and Rs 1 lakh in the subsequent cycles from Rs 50,000.

The announcement resulted in a surge in the stock of SKS Microfinance. Shares of the company rose 8.61 per cent to Rs 513.95 on the BSE.

The microfinance industry, which has welcomed the decision, expects loan portfolios to improve with the existing borrowers becoming eligible for additional credit.

"Subsequent to the 2010 developments in Andhra Pradesh and the Malegam Committee Report, the microfinance industry has become tightly regulated. Over the last few years, the industry has matured and become much more disciplined," said Alok Prasad, CEO of Microfinance Institutions Network.