Beena ParmarMoneycontrol News
In a bid to ease loan default burden at microfinance institutions (MFIs), the Reserve Bank of India (RBI) may offer a three-month repayment extension to customers whose loans were due from November 1, 2016 to December 31, 2016.This comes after a presentation was made by the Microfinance Institutions Network (MFIN), a self-regulatory body for microlenders, wrote to the RBI last month expressing fears of huge non-repayments owing to demonetisation.
“Our collections in the last three months took a hit, falling to 80-85 percent from 99 percent. Borrowers have not been able to pay on time due to discontinuation of old high-value currency notes. This affected the industry’s collections which went down by 20-30 percent and a large part of our disbursements also gets done from collections,” Ratna Vishwanathan, Chief Executive Officer of MFIN said.An official privy to the developments at RBI said that the central bank is considering an extension of loan repayment schedule.
A microfinance loan of up to Rs 30,000 is typically for 12 months while loans above that are to be repaid within 24 months. MFIN wants the tenure to be extended by another three months, essentially restructuring the loan.
Typically, an MFI loan is classified as a non-performing asset (NPA) if principal and interest are overdue for 90 days or more. In the wake of the cash crunch due to demonetisation, RBI had allowed MFIs an additional 90 days to classify loans as NPAs, if payments were due between November 1 and December 31.
However, this was misinterpreted by the media, market and some politicians who confused borrowers terming the extension as a waiver.
Vishwanathan said many MFIs have also filed cases against some people with vested interests in election regions of western Uttar Pradesh and Maharashtra, while repayments also affected in states like Madhya Pradesh, Karnataka and Uttarakhand.
Failure to pay on time will impact the credit rating of borrowers as well as microfinance firms.
“If borrowers miss paying the instalments on time, this pushes them in the defaulter list in the credit bureaus and this also adversely impacts our credit rating which can affect our ability to raise funds,” Vishwanathan added.
Despite the 90 extra days given by RBI, microfinance firms have witnessed increased stress levels.
Last week, Bharat Financial Inclusion, a major player in the microfinance space, informed analysts said that around 4.5 percent of its loan portfolio faces a risk of turning bad in Q4. In the December quarter, the comparable ratio was 0.2 percent.
So far, outstanding loans to the tune of Rs 306 crore have seen no recovery in the last two months, the company said.
MR Rao, Managing Director and CEO of Bharat Financial said given that elections were in its last leg, the intensity of the campaign for loan waivers had come down. However, collections would take a couple of months to normalise.
Meanwhile, Ujjivan Financial Services also made an additional provision of Rs 55 crore in the third quarter as a precaution against instalments due under the 90-day window.
Rajeev Yadav, Group CEO, DishaMicroFin said, “Definitely, the repayments were hit and the element of 3 month breather will help the portfolio at risk. Things have bottomed out from the two months post demonetisation and the collections are getting much better.”
Collections in parts of Uttar Pradesh, which had fallen by 20-25 percent, has improved to 75-80 percent. The state had the highest portfolio at risk at 28.72 percent after 30 days followed by Haryana at 13.97 percent, according to MFIN data.
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