ET Now: The FM made some specific announcements for smaller borrowers. What do you make of the announcements for the MFI space?
Alok Misra: I think the announcements for the microfinance sector regarding the partial credit guarantee scheme are very welcome. The sector was looking for these.
I would run you through the important parts of the announcements made for the NBFCs-MFIs space, including MFIs that are operating as Section 8 companies and even as NGOs. Under the liquidity measures announced by the RBI — TLTRO and even special liquidity fund facility through RBI and NABARD and SIDBI — most the funds had flown through the larger players, leaving smaller and medium MFIs short of liquidity.
Same was the case with last year’s PCGS scheme, which said it would guarantee the commercial paper and NCDs to be issued. Typically, small and medium players do not issue CPs and NCDs, so they would not be able to get that rating.
Now, these institutions play a very vital role in pushing inclusion of low-income clients. They need to be supported. Bankers are understandably risk-averse at this point, so we requested the government for some form of support. I am very happy that the government has agreed to it.
The new steps — guarantee for a certain period, the cap on interest at MCLR plus 2%, etc — are very welcome. Besides, the guarantee amount of Rs 7,500 crore will more than sufficiently take care of the liquidity requirements of small and medium MFIs.
The FM the move would benefit 20 lakhs microfinance clients. If you divide Rs 7,500 crore by the average microfinance loan size of Rs 30,000, it comes to roughly 25 lakh clients. So, I feel it is great step because not only CPs and NCDs, but now term loans from banks also are covered under it.
It will give a lot of fillip to liquidity flow to the microfinance institutions, especially the small and medium ones. I welcome it wholeheartedly.
Liquidity is one factor, but stress in the system is quite another. What about collections during the second wave of the pandemic?
Things returned to semi-normal or sober after activities resumed post the first wave. By December, we were almost at normal levels in towns.
By normal activity, I mean institutions were able to operate and go to the clients. As per March data, all-India recovery percentage was at 90% plus. Some states like Karnataka went as high as 96%.
We were almost reaching normalcy when the second wave hit. We have not had time to assess the impact fully, because many states still have lockdowns. We are finding it difficult to assess whether the dip in repayment is due to the inability of the institutions to reach the clients, or due to livelihood stress.
Livelihood stress is definitely there. With RBI’s resolution framework and with lockdowns lifting, I think by end of July we will have a fairer sense of the level of stress. I do not think the current stress is far greater than what it was in the first wave.