The Tamil Nadu government’s Bill seeking to protect borrowers from the coercive recovery process will not affect regulated entities such as banks, NBFCs and microfinance institutions (MFIs), Muthoot Microfinance chief executive Sadaf Sayeed has said.
“I don’t think it will have any damaging impact on regulated entities,” Sayeed told FE, noting that unlike Karnataka’s legislation, the Tamil Nadu Bill specifically exempts entities, including co-operative banks, registered with the Reserve Bank of India (RBI). “The Bill mainly targets unregulated lenders.”
Microfinance and small finance banks are anxious that any sort of state legislation will impact the credit discipline and repayment behaviour of borrowers as they may not distinguish between regulated and unregulated lenders.
Sayeed, however, said borrowers at the grassroots level are becoming increasingly aware of the difference between regulated and unregulated lenders. He said the collection efficiency in Karnataka has improved since the implementation of the Act.
The Karnataka Act has tough provisions — up to 10 years of imprisonment and a Rs 5-lakh fine in case of coercive recovery.
Sayeed pointed out that Karnataka’s draft Bill initially included regulated entities, particularly microfinance firms, but advocacy by self-regulatory organisations like Sa-Dhan led to their exclusion in the final version.
“In Tamil Nadu, the exclusion has been proactive. So, we see little or no impact,” he said, adding that initial ground-level feedback does not suggest any adverse impact. “We’ll reassess once the final Bill is enacted.”
Tamil Nadu accounts for a quarter of Muthoot Microfinance’s Rs 12,405-crore assets as of December 2024.