SIDBI extends loan repayment term to 1-year for NBFCs, MFIs

Small Industries Development Bank of India (SIDBI) has extended the repayment period of loans to non-banking finance companies (NBFCs) and Microfinance Institutions (MFIs), announced under Reserve Bank of India's (RBI) special liquidity scheme, to one year from the 90-day period earlier.

This is a significant development  as microlenders felt the earlier repayment rules were stringent considering the present operating environment. Due to COVID-19 induced lockdown, operations of these firms have come to a halt. Most MFIs and NBFCs felt that they wwill not have enough time to make repayments to SIDBI in just 90 days.

MFIs are companies that typically lend to low-income borrowers, who are mostly daily-wage earners or run microbusinesses. These loans are given for 18-24 months at a rate of 21-23 percent. The average loan ticket size is around Rs 30,000.

Under the special liquidity measures announced by the Reserve Bank of India (RBI) to fight Covid-19, the central bank had given Rs 15,000 crore to SIDBI. Subsequently, SIDBI had announced a scheme for these companies. While SIDBI has now relaxed the repayment timeframe, the rating requirement stays.

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On April 17, RBI Governor Shaktikanta Das had announced refinancing support to the tune of Rs 50,000 crore to NBFCs and MFIs through all India financial institutions such as NABARD, SIDBI and NHB.

The central bank said NABARD will be given Rs 25,000 crore for refinancing regional rural banks (RRBs), SIDBI will be given Rs 15,000 crore and Rs 10,000 crore will be given to NHB for supporting housing finance companies (HFCs). Advances under this facility will be charged at the RBI's policy repo rate at the time of availing the funds, the RBI said.

Sadhan, microfinance firms’ industry body, has also requested to ease the rating requirement to BB to enable more institutions to be made eligible for the scheme. Sa-Dhan had cited that non-NBFC-MFI consider only MFI grading as most of them do not get themselves rated due to the costs involved.

Out of the 215 members of Sadhan, only 30 MFIs have even BBB- rating. There are 66 NBFC-MFIs under Sadhan. If the rating stipulation can be up to BB, many of these companies will benefit since very few have BBB-.

MFIs have also requested Sebi to delay the ratings on microlenders, whose operations have been disrupted by COVID-19. Rating agencies typically revise ratings of microlenders after 12 months. MFIs want this period to be extended to 15 months.

MFIs feel that rating reviews during the lockdown will not reflect the correct state of their financials in ratings. Ratings are important for companies as lenders consider this as a key parameter while deciding the credit worthiness of a borrower.