Private banks are also understood to be entertaining requests for a moratorium as some of them have exposure to microfinance borrowers themselves and have a good sense of the market.
Some private sector and foreign banks have begun offering the loan moratorium to their microfinance institution (MFI) borrowers, even as confusion prevails over whether the regulator’s circular permits extension of the breather to non-banking financial companies (NBFCs).
So far, banks have been demurring from offering the moratorium to NBFCs as they believe the liquidity being released to the latter set in the form of targeted long-term repo operations (TLTROs) should see them through the next few months. MFIs might, therefore, be the first set of NBFCs who have managed to secure the benefit of the moratorium from banks.
Industry executives said that each bank is following its own strategy when it comes to offering the moratorium to MFIs. Manoj Nambiar, MD, Arohan Financial Services, and chairman, Microfinance Institutions Network (MFIN), told FE: “There’s a fair number of lenders who have extended the moratorium, although in different ways. Some have given a two-month moratorium, some have given a three-month moratorium, some have given a moratorium on principal only and not interest. Overall, it is on a case-to-case basis and most people have managed to get what they want to.”
Foreign banks are asking MFIs to service interest while deferring principal payments. Private banks are also understood to be entertaining requests for a moratorium as some of them have exposure to microfinance borrowers themselves and have a good sense of the market.
Nambiar said that most MFIs have already repaid their March instalments by the time the moratorium was announced. Some small and medium MFIs are facing a credit crunch because they cannot make collections from clients and still have to take care of operational expenses. While there have been no defaults by MFIs so far, some institutions have requested banks not to deduct from their accounts repayments falling due last week. As the RBI circular specifies that non-repayment of dues between March and May 2020 will have no adverse impact on a borrower’s credit history, the institutions are protected against downgrades.
On Wednesday, CARE Ratings said that an analysis of the asset-liability position of 14 MFIs revealed that, on an average, these companies have around 2.5 months of liquidity. At the same time, their liquidity position has historically been reliant on repayments. “In the current situation of COVID-19, due to lockdown and moratorium provided to the borrowers, inflows from advances will be very low,” the rating agency said, adding that MFIs have a higher proportion of term loans from banks than capital-market instruments. So, a moratorium is critical for NBFC-MFIs to sustain their business and tide over liquidity stress as they have announced moratoriums for their borrowers, CARE said.