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.
In a bid to ease loan default burden at Microfinance Institutions (MFIs), the RBI may offer a three-month repayment extension to customers whose loans were due from November 1, 2016, to December 31, 2016.
This decision was taken after a presentation was made by the Microfinance Institutions Network (MFIN), a self-regulatory body for microlenders, wrote to the Reserve Bank Of India last month saying about the huge non-repayments of loans due to demonetisation.
“Our collections from the past three months took a hit, falling to 80-85 percent from 99 percent. Debtors have not been able to pay on time due to the note ban of old Rs.500, Rs.1000 notes. This affected the industry’s collections which fallen by 20-30 percent and a large part of our payments also gets done from collections,” Chief Executive Officer of MFIN , Ratna Vishwanathan 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 have a period of 12 months while loans above that are to be repaid within 24 months. MFIN wants the tenure to be extended for another three months, essentially restructuring the loan.
If the principal and interest are overdue for 90 days or more an MFI loan is considered as a non-performing asset (NPA). Because of demonetisation , RBI had allowed MFIs an additional 90 days to classify loans as NPAs, if payments were due in between November 1 and December 31.
Failure to pay on time will affect the credit rating of borrowers as well as microfinance companies.
“If borrowers miss paying the installments 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.
Microfinance firms have witnessed increased stress levels because of the extra 90 days given by Reserve Bank of India.
Bharat Financial Inclusion, a major player in the microfinance space, informed specialists said that around 4.5 percent of its loan portfolio faces a risk of turning bad in Quarter 4. In the December quarter, the comparable ratio was 0.2 percent.
So far, outstanding loans value to Rs 306 crore has seen no recovery in the last two months, the company said.
Managing Director and CEO of Bharat Financial, MR Rao said given that elections were in its last phase, the intensity of the campaign for loan waivers had come down. It would take few more days to normalise.
Rajeev Yadav, Group CEO, DishaMicroFin said, “Definitely, the payments were hit and the element of 3-month breather will help the portfolio at risk. Things getting better 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.