Economy

‘Small finance banks may lend ₹3,000 cr. to MFIs’

RBI’s move to allow small finance banks (SFBs) to classify loans to small microfinance institutions (MFIs) (with a loan book of sub-₹500 crore) as priority sector advances will lead to an incremental funding of up to ₹3,000 crore to the MFIs, as per Acuite Ratings.

“While scheduled commercial banks have funded large MFIs, they have been reluctant to sanction loans to those smaller in size,” it said in a report.

“However, SFBs understand the small MFI segment in a better way since the majority of the SFBs have started their operations as a small MFI,” it said.

“We expect that this measure will lead to an incremental funding to the sub-₹500 crore MFI segment to an extent of ₹2000-₹3000 crore over FY22 and therefore, provide support to the liquidity position of these players,” it added.

“Further, the cost of the incremental borrowings is expected to be less as SFBs will be able to access SLTRO funds at a repo rate of 4% and up to a tenure of three years. Consequently, the profitability pressures in the small MFI segment may also get partly offset,” it added.

It said RBI’s latest announcement on SLTRO of ₹10,000 crore for SFBs will ensure higher direct disbursements to microfinance borrowers and better funding access for the smaller MFIs.

The fresh restructuring window for loans up to ₹25 crore will also support the MFI sector in alleviating the additional asset-quality stress emanating from COVID 2.0, it said.

Acuité said it expects 90-day delinquencies to increase at least by 30% by June 21 even if the pandemic’s intensity starts tapering down from the middle of May and can more than double if the local lockdowns continue till the end of Q1FY22.


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Printable version | Jun 17, 2021 12:44:04 AM | https://www.thehindu.com/business/Economy/small-finance-banks-may-lend-3000-cr-to-mfis/article34530191.ece

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