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RBI tells MFIs to improve governance, loan appraisal system; assesses pandemic-led stress

The Reserve Bank of India has stressed that microfinance lenders need to follow appropriate governance and risk management standards even as these lenders are facing challenges with falling repayment collection while the raging second wave of the Covid-19 pandemic is affecting livelihoods.

The central bank governor Shaktikanta Das called on these lenders Monday to assess the ground level situation—going beyond the accounting numbers of micro lenders—following the sharp rise in the rate of infections across regions, which forced local authorities to go for area wise containments and partial lockdowns.

Das told these lenders to follow prudent lending practices backed by proper appraisal systems and avoid over indebtedness of borrowers, an issue which caught the attention of all stakeholders especially in Assam, Tripura, Uttarakhand and West Bengal.

Deputy governors MK Jain and MD Patra were present at the meeting with the representatives of NBFC-MFIs and their two industry associations—Sa-Dhan and Microfinance Institutions Network.

The micro lenders requested RBI to allow flexibility in restructuring the loans and forbearance to the borrowers in form of postponements of instalments. “The restructuring at borrower level should also be accompanied by a moratorium/postponement of instalments to MFIs by lending banks. We have also highlighted the need to raise margin cap from 10% since higher credit cost besides rising operating expenses squeezed the already thin margin,” an industry veteran said.

Heads of as many as 10 NBFC-MFIs including Annapurna Finance, Arohan Financial Services, CreditAccess Grameen, Muthoot Microfin, Satin Creditcare Network, Sonata MicroFinance and Spandana Sphoorty Financial attended the meeting.

“Collection efficiency is dipping amid reverse migration and erratic income generation,” a chief executive of a leading NBFC-MFI told ET. “We have also stressed on the fact the banks have stopped lending affecting liquidity.”

Rating company ICRA has estimated a sequential 8-10% drop in collections in April 2021 and the same may dip further if the second wave cannot be controlled. “Consequently, the industry is witnessing a reduction in collections and the recovery seen in Q4 FY2021 is being challenged again,” it said.

Many banks have withheld release of funds after sanctioning the loan, even for large NBFC-MFIs. RBI’s special liquidity facility through the National Bank for Agriculture & Rural Development (Nabard) and Small Industries Development Bank of India (Sidbi) last year was useful but it went to a limited number of institutions. Overall, only about 40% of the MFIs received liquidity support from their lenders.

Last week, Sa-Dhan wrote a letter to finance minister Nirmala Sitharaman demanding extension of the government’s partial credit guarantee scheme for bank loans on micro lenders so that banks are encouraged to lend to MFIs

The existing provisions of relief in cases of natural calamities could be applied, they urged RBI.

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