A day after the Reserve Bank of India (RBI) issued guidelines relating to forbearance on loans of less than Rs 1 crore, microfinance institutions and small finance banks said the move is unlikely to affect their clients’ repayment behaviour or their own asset quality metrics to a large extent.
Since the guidelines entail relaxation only in terms of classification of loans and not a repayment holiday, lenders do not see them inducing irregularities on the collections front. Samit Ghosh, managing director and CEO, Ujjivan Financial Services, said: “What they (RBI) have actually announced is an extension for when you can classify bad debt in terms of sub-standard assets, which they have extended from 90 days to 150 days. The RBI is certainly not telling borrowers that they have two months’ additional time to repay.”
Ujjivan, which last week received the final regulatory approval to start a small finance bank, has seen little change in the repayment behaviour. “What we have seen in the market today and also across India (is that) repayments are coming. Only places in the north where politicians have got involved, etc, with local state elections coming, that’s where we are facing some problems,” Ghosh said.
Ujjivan’s rival Equitas, which has already made the transition to a small finance bank, has not seen repayments getting affected by demonetisation. HKN Raghavan, head of consumer banking at Equitas Small Finance Bank, said, “Post demonetisation, we resumed our collections as usual because we are a bank and RBI guidelines clearly say that notes of Rs 500 and Rs 1,000 denominations can be collected against loan accounts. So, as banks we continue to collect and as of Monday, we haven’t found any major stress as far as collections are concerned.” Raghavan said.
Non-banking financial companies (NBFCs), bereft of the luxury of accepting old high-value notes, have borne the brunt of demonetisation in the form of delayed repayments. R Manomohanan, CEO of Muthoot Capital, told a television channel that the company sees collections to drop by Rs 20,000 crore in November. “The impact of the RBI relief I do not think is of much use to us because that is only deferring the classification of assets as substandard by 60 days, which means that we may be able to avail of these benefits on the balance sheet as on December 31, 2016. But in January, things will go back to what it was earlier,” he said.
Umesh Revankar, managing director and CEO of Shriram Transport Finance, said while collections may see a 10-15% drop around the end of the current month, the forbearance guideline will ease the situation for the company. “If we (NBFCs) were allowed to accept repayments in the old currency, it would have been much better. But, at least, there is some understanding from the RBI that there is going to be some challenge.”
Revankar said movement of trucks had not suffered much since demonetisation as fuel outlets continue to accept old notes. However, inter-state and long-distance movement of vehicles had been affected because fuelling stations in remote locations were refusing old notes, he added.