MFIs flag rural borrower distress to RBI

Lenders plead for central bank relief, say small-ticket, rural customers hit harder by second wave

Published - May 04, 2021 11:22 pm IST - NEW DELHI

  Hunkering down:  Many borrowers intend to conserve cash to tide through the phase, says MFI executive.

Hunkering down: Many borrowers intend to conserve cash to tide through the phase, says MFI executive.

The pandemic’s second wave is affecting rural households far more than last year, with a large number of microfinance staffers, borrowers and their families hit by COVID-19, impacting many more livelihoods than during the first wave.

The trend, which poses a higher risk of loan delinquencies if the rising infections don’t taper off by the end of May along with mobility restrictions, was flagged by microfinance institutions (MFIs) to the Reserve Bank of India Governor Shaktikanta Das on Monday, according to two industry representatives who attended the meeting.

Urging the central bank to grant forbearance for borrowers unable to pay instalments with some flexibility for the MFIs to restructure affected loans, industry representatives observed that while collections had been normal till early April -- in the wake of the gradual recovery -- they had slowed down since then.

“A larger proportion of borrowers and their families are affected by the illness, even in rural areas, in contrast to last year,” an industry executive said, speaking on condition of anonymity. “Many of our borrowers’ livelihoods are getting affected and they intend to conserve cash to tide through this phase,” he added.

The official said that a significant section of MFI staff working with borrowers had also been infected, triggering fear among employees.

“Instead of an across-the-board moratorium... it would be better to give MFIs freedom to restructure loans based on requests without attracting the provisioning norms,” said another MFI official. “We have suggested to the RBI to consider this, while invoking relief provisions that are applied for natural calamities,” he said.

In a statement after Monday’s meeting, the RBI said that the Governor had discussed the current economic situation and the outlook on potential stress on MFIs’ balance sheets, as well as credit flows to their borrowers.

ICRA cautioned on Tuesday that MFIs face a ‘high risk’ perception amid the sharp surge in infections. Though some States have classified the industry as an essential activity, borrowers’ cash flows may be affected due to restrictions.

“Rapidly rising infections and mobility restrictions are... impacting MFIs’ field operations,” noted Sachin Sachdeva, sector head, financial sector ratings at ICRA. “Consequently, the industry is witnessing a reduction in collections,” he said.

“We estimate a sequential drop of 8%-10% in collections in April 2021 and the same may dip further,” Mr. Sachdeva cautioned.

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