The Reserve Bank of India ( RBI) is exploring steps to aid struggling microfinance institutions (MFIs) through a separate credit line, said a senior RBI official, requesting anonymity. While the health of MFIs has been a cause for concern with collections dropping to near-zero due to the nationwide lockdown, the sector suffered yet another jolt when banks refused to offer moratoriums.
The central bank is closely examining the data received from MFIs, including their credit ratings, liquidity positions and cash in hand.
According to the official, 31 out of 90 MFIs have floated their investment-grade papers and are therefore eligible to avail funding under the targeted long-term repo operations (TLTRO). With limited liquidity available under the TLTRO window, and a large number of firms queuing up, MFIs are unlikely to get any liquidity support from banks.
MFIs, like other financial institutions, are in a fix over whether they can avail of the moratorium benefit on term-loan repayments given to all borrowers.
Banks, such as State Bank of India, have adopted different rules by deciding not to offer moratorium to MFIs. However, the FAQs brought out by Indian Banks’ Association explicitly mentions that the moratorium is available to all borrowers, including financial institutions. The RBI rules, on the other hand, have left it to the discretion of banks to allow a deferment of three months on payment of installments on all term loans.
“Since small businesses and economic activities of borrowers of MFIs have come to a standstill and operations of MFIs also have come to a standstill, there is no way borrowers can repay to MFIs and MFI can repay to lending institutions. Back to back moratorium to clients and from lending, banks and financial institutions are therefore needed. Once the lockdown norms are eased, MFIs will need to restart business operations, for which they would require additional credit from SIDBI, NABARD, Mudra or bigger banks,” said P. Satish, executive director at Sa-Dhan, an association MFIs.
Sidbi is a Small industrial Development Bank of India, and Nabard is National Bank for Agriculture and Rural Development.
According to the data collated by Microfinance Institutions Network (MFIN) as on 31 March, total borrowings of MFIs stood at ₹53,853 crore. Of this ₹35,288 crore is from banks and ₹18,565 crores from non-banks including MUDRA, Sidbi, Nabard and other non-banking financial companies (NBFCs), who lend to small and medium MFIs. At the end of January, total MFI credit to borrowers stood at ₹95,000 crores to ₹1 trillion.
However, MFIs are not convinced that giving a separate credit line will help solve the problem.
“Authorising banks, DFIs, NBFCs to give a back-back moratorium to NBFC-MFIs is the only, immediate solution to the liquidity challenges since all MFIs have stopped collections from their borrowers. Earlier, many banks had offered this moratorium, but they have withdrawn it, citing confusion in the RBI guidelines. We hope that the RBI will respond to the industry’s plea. All other proposed solutions will take time (especially when everyone is working from home) and will require MFIs to borrow more simply to repay another lender,” said Harsh Srivastava, chief executive of MFIN.
With collections coming to a standstill following the lockdown, analysts say MFIs will be the worst affected. The impact on MFIs will continue even after the lockdown is lifted as the economy will take time to recover.
(With inputs from the livemint)