Pending repayments remain high for MFIs: RBI staff report

MFIs faced problems in getting repayment in some pockets of India because of currency shortage

The financial sector may gradually be recovering from the effects of demonetisation, but microfinance companies, whose customers depend on cash transactions, are still grappling with pending payments with high risk of defaults.  

A research paper by the Reserve Bank of India (RBI) staff said such customers often fall in the category of small farmers and unskilled labour. 

Microfinance institutions faced problems in getting full repayment from clients in some pockets of the country because of currency shortage. As the time progresses, the prospects of recovery from people who stay in default reduce, said bankers.  

The RBI relaxed the norms for asset qualification for loan installments due between November and December 2016 as a step to reduce adverse impact on books of finance companies. 

Data provided by the Micro Finance Institution Network (MFIN), a self-regulatory body of finance companies working in micro finance segment, however, suggest that pending repayments were still high in January 2017, the paper said.

In November 2016, the RBI provided an additional 60 days beyond what was applicable for the regulated entities in this sector for recognition of a loan account as sub-standard. 

Subsequently, on December 28, the central bank again announced forbearance of 30 days (in addition to the 60 days provided earlier). The impact of leeway on non-performing assets (NPAs) would be known by the end of March.

While the total loan amount outstanding declined by 4.1 per cent between November-end and January-end, loan amount disbursed increased by 9.2 per cent during the same period. The cash collections, which initially witnessed significant reduction, improved subsequently, except for some pockets in the western region.

The latest feedback received by MFIN from their member MFIs suggests that there has been some improvement in collections since late December. While repayments are mostly made in cash, MFIs are striving to opt for different cashless ways for disbursements.

The paper, titled ‘Macroeconomic Impact of Demonetisation — A Preliminary Assessment’, prepared by the staff of Monetary Policy Department at RBI, claimed the impact of demonetisation on the real economy has been transient.