Sunday, November 27, 2022

MFIs welcome RBI’s decision to give priority tag for SFB loan to small microleaders, but want more

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Microfinance industry officials have welcomed the steps announced by the Reserve Bank of India (RBI) to support small microleaders severely affected by the second wave of the epidemic. However, the industry was expecting more measures, including postponement of payments by borrowers for at least a few months, given the difficult operating environment.

Announcing the measure today, RBI Governor Shaktikanta Das said that small finance banks (SFBs) can classify loans to MFIs under priority sector lending (PSL) category. PSL refers to compulsory lending by banks for the economically weaker sections. Banks are required to lend 40 percent of their loans in this category.

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Currently, the PSL classification for lending to MFIs has not been expanded by the SFB. The Reserve Bank of India governor said, “In view of the epidemic of small MFIs and the fresh challenges of the emerging liquidity situation, SFBs are now being allowed new loans for small MFIs (with assets up to Rs 500 crore). is. Sector giving priority to individual borrowers. The Governor said that this facility will be available by 31 March 2022.

MFIN (Microfinance Institutions Network), the representative microfinance industry association and the RBI-accredited self-regulatory organization, welcome the initiative of the RBI governor. SFBs understand the market well, should lead solid liquidity flows and also welcome lenders’ flexibility by allowing restructuring of flexibility on a case-by-case basis as it will relieve stressed customers.

MFIN CEO Alok Mishra said, “We will continue to build a systematic support for small NBFC MFIs with RBI to allocate a specific sub-allocation out of overall liquidity support.” Will be resolved soon. “

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Sa-Dhan executive director P Satish said he expected more measures from the central bank in the next few days or weeks. “SFB permission to classify new lending to small MFIs under the PSL tag is a good step. But, MFIs were expecting a postponement of all loans for their borrowers for two to three months. It has not come. We hope that RBI will come up with more announcements in future. “

MFIs are institutions that provide small ticket loans and mostly source money from banks to do business. On May 3, MFI representatives met top RBI officials.

MFI representatives said that although the sector recovered from the severe impact of the lockdown in April-June, 2020 and was returning to normalcy, the second coronavirus wave and the ever-increasing local lockdown were causing problems for the sector. He said that a large number of MFI employees were being affected by the second wave, which worried the employees.

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In comparison to last year’s outbreak, a large number of borrowers and their families were sick in rural areas as well. Industry officials told the RBI that several MFIs reported normal collection levels in early April but it was slow as borrowers’ livelihoods were being affected and they were conserving cash.

RBI steps in

Announcing the measures today, the RBI also said that it would conduct special three-year long-term repo operations (SLTRO) of Rs 10,000 crore at repo rate for SFBs, which will be awarded to new borrowers of up to Rs 10,000 per borrower. Will be posted for This facility will be available till October 31, 2021.
Last year, RBI announced a six-month deferment and later a one-time restructuring facility for banks.
This helped the banks to avoid huge increase in their non-performing assets (NPAs). The loan becomes NPA if interest or principal is not repaid for 90 days. Once a loan becomes an NPA, banks are required to put money aside from such accounts to cover potential losses. Higher provisions hurt banks’ profitability.

This time, the central bank has not announced the blanket moratorium scheme. It added that those who have taken advantage of the restructuring under the Kovid Resolution Framework 1.0 can withhold loans up to two years. For other borrowers, RBI has announced a separate debt restructuring plan (Resolution Framework 2.0), under which individuals and small businesses and MSMEs can have a total investment of up to Rs. 25 crores.

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The RBI said that the restructuring can be implemented by September 30, 2021 under the proposed framework and will have to be implemented within 90 days of the call.

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