Banks, already reeling under the rising pile of non-performing assets, are worried that the RBI’s move to extend the repayment period for small borrowers in the wake of the demonetisation, could actually them to take a payment holiday.
The Reserve Bank of India (RBI) has allowed both individuals and companies -- banks, non-banking finance companies (NBFCs) and microfinance companies (MFIs) -- with loans up to R1 crore an additional grace period of 60 days over the original 90-day period to repay their loans. This is applicable for ongoing loans where the dues are payable between November 1 and December 31, 2016.
Typically, if a borrower does not pay interest within 90 days, his loan is considered as a non-performing asset (NPA) according to RBI guidelines. The central bank has extended this by an additional 60 days.
“It has been misconstrued by media and the borrowers. It is not a payment holiday but an aid to MFIs to not set aside capital to provide for the loss of repayment. There could be some leakage where people can misuse this and delay their repayments,” said Rajeev Yadav, chief executive officer of Disha Microfinance.
MFIs and other small lenders who largely deal in cash, have seen a 40% reduction in repayments in the days since the government announced its demonetisation drive, compared to the usual 99%.
The collection on a monthly basis is R5,000-6,000 crore, according to experts. Based on that estimate, a reduction in repayments has resulted in a loss of R1,500- 2,000 crore for MFIs in the last 14-20 days.
“We will charge the normal overdue interest to customers. Usually, we give a moratorium for a week and then apply the overdue fees,” said SV Raja Vaidyanathan, founder chairman and managing director of Asirvad Micro Finance, a Tamil Nadu-based MFI .
The industry has also asked the RBI to clarify whether MFIs and NBFcs can receive the cash repayments in the old R500 and R1,000 currency notes.
“We have asked the RBI and the government to allow payment of installments in the old currency. They can cap it if they want. Our per installment repayment is about R850-2,000,” said Ratna Vishwanathan, CEO, MFIN (MFI Network).
”If deferment is given to all, there is a likelihood of it being a default,” Vishwanathan added . “Default is like an epidemic. If default spreads, the industry suffers very badly as there is nothing to back up. That should not happen.”