In a letter to RBI Governor Shaktikanta Das, MFI association SaDhan has sought a special liquidity facility of at least Rs 15,000 crore to be provided by all-India financial institutions such as National Bank for Agriculture and Rural Development (NABARD) and Small Industries Development Bank of India (SIDBI). Of this, at least 40 per cent of the funds should go to MFIs with an asset size of Rs 500 crore.
The fresh rise in infections has resulted in loacalised lockdowns, adversely impacting the borrowers’ ability to pay back. “Due to increase in lockdowns and impact on incomes of clients, the repayments of MFIs are being affected adversely which leads to severe liquidity and sustainability issues if not supported with sufficient funding and asset classification support from banks and DFIs,” said P Satish, executive director, SaDhan.
They have also sought an emergency credit line of up to 25 per cent of their outstanding loans with lending banks. This will enable MFIs to mobilise around Rs 15,000 crore.
Thirdly, they have asked the central bank to monitor the flow of funds from banks to MFIs under the on-tap TLTRO scheme so that there is timely flow of liquidity to the sector. “If the sector could be supported with Rs 25,000 crore under this funding window, it would immensely help MFIs in coping with their liquidity and funding challenges,” the letter said.
Also, they have asked the RBI to introduce Partial Credit Guarantee Scheme 3.0, which provides the much-needed nudge to banks in these uncertain times to lend to MFIs, especially small and mid-size institutions with relatively lower ratings.
The letter said that banks and institutions such as NABARD and SIDBI should look at providing a moratorium of six months or a year to MFIs, after assessing their cash flow position.
As collections fall, sustainability of MFIs will become a problem and this may in turn have an impact on their ratings, which will further impede their chances of raising funds. Many rating agencies have also raised the issue of the adverse impact of the deadly second wave of Covid on MFIs.
Last week, ICRA said the MFI industry is witnessing a reduction in collections and the recovery seen in Q4FY21 is being challenged. It has estimated a sequential drop of 8-10 per cent in collections in April 2021, saying it may dip further if cases continue rising and more restrictions are imposed.
Acuite Ratings and Research has said while the industry was in a gradual recovery phase from Q3FY21 — through an improvement in delinquencies and disbursements — the second wave has started to disrupt that nascent recovery.
“Given the wider coverage of the virus across semi-urban and rural areas in this cycle, the risks of a sharper impact on the lives and livelihoods of the microfinance borrower is higher in the near term.”
It expects 30-day delinquencies to increase by 30 per cent by June 2021 even if cases start to fall from mid-May, and may more than double if there is no respite from the pandemic and local lockdowns continue till Q1-end.
Recently, the RBI had come up with some measures for the sector.
The RBI said it will provide Rs 10,000 crore for three years at the repo rate to small finance banks to lend to individuals, and small and medium enterprises, etc. It also incentivised SFBs to lend to MFIs by granting priority sector lending status to such exposures.
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