Moneycontrol PRO
Upcoming Webinar:Watch a panel of experts discuss: Challenges of continuously evolving regulation for Cryptocurrency, on 7th July at 3pm. Register Now
you are here: HomeNewsBusiness

COVID-19-hit microlenders knock on SEBI’s door seeking extension of rating period

Rating agencies typically revise ratings of microlenders after 12 months. Despite the lock down, some of the microlenders have received communication from agencies on further rating revision.

April 29, 2020 / 02:05 PM IST

Microfinance institutions (MFIs) have sent a distress call to markets regulator, the Securities and Exchange Board of India (SEBI), seeking to instruct credit rating agencies to delay the ratings on microlenders whose operations have been disrupted by the impact of COVID-19. Rating agencies typically revise ratings of microlenders after 12 months. This time, microlenders want an extension of three months to this period. In the absence of this, ratings will not reflect the correct financial position of MFIs, microlenders fear.

Despite the lockdown, some of the microlenders have started to get communication from agencies  on further rating revision, said P Satish, Executive Director of Microfinance body, Sa-Dhan.“It is necessary that rating agencies should wait for the situation to normalise in the country and normal economic activities to resume before giving a fresh rating to MFIs,” Sa-Dhan wrote in a letter to SEBI. Moneycontrol has reviewed the letter.

“The most appropriate course of action at this juncture would be to extend the existing rating period from 12 to 15 months, so that fresh assessment can be done and renewed rating can be assigned after the normal operations resume in microfinance sector,” MFIs said. As on January 31, the loan portfolio of MFIs stood at Rs 90,413 crore. The repayment rate, which is typically more than 98 percent, fell due to the COVID-19 lockdown.

While MFIs have announced repayment moratorium for their clients, banks haven’t extended the same to many NBFCs and MFIs.

“Though the Government has allowed MFIs to function in a limited manner, the ground level situation is not conducive for regular functioning. MFIs are unable to complete the annual closing of accounts related work and take up the audit,” Microlenders have said in the letter.


COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more

MFIs allege that even without sufficient data some rating agencies are seeking to give fresh rating to MFIs based on incomplete and insufficient information and absence of field assessment. Any such fresh rating would, therefore, be erroneous and incorrect.  Ratings are critical for a company since lenders consider this to decide the creditworthiness of the borrower.

MFIs operate in the form of non-banking finance companies (NBFCs) and non-NBFCs. There are about 66 NBFC-MFIs under Sa-Dhan. These lenders have found it difficult to access funds under the special liquidity window of the RBI due to banks’ high risk aversion. Much of the funds under the targeted long term repo operation (TLTRO) availed by banks went to big companies. Though the RBI allocated Rs 15,000 crore to on-lend to MFIs and small firms, stringent conditions laid out in the scheme agreement made it difficult for MFIs to access this money. These include BBB-rating requirement and 90-day repayment condition. MFIs have sought relaxation of lending terms from Small Industries Development Bank of India.
Dinesh Unnikrishnan
first published: Apr 29, 2020 02:05 pm
ISO 27001 - BSI Assurance Mark