'In times of recovery, we may see a rural-urban divide with the urban pockets affected more by COVID-19, but the MFI business model should encourage banks to handhold them in this hour of crisis,' notes Tamal Bandyopadhyay.
Gold prices hit record high in the third week of March as fears of bank collapses and high inflation led investors to the traditional safe haven. Gold prices are often inversely correlated to dollar strength because the international price is dollar-denominated. The Federal Reserve's (Fed's) stance indicates that the dollar may appreciate further since it is prepared to keep pushing up policy rates. But demand for gold is also up - the World Gold Council claims central banks are buying in addition to private demand.
The government on Tuesday said it is not in favour of regulating interest rates charged by micro-finance institutions but emphasised that there should be transparency in amount they charge from the borrowers.
India Inc resorted to salary cuts to protect their profits in the June quarter, as revenues came under pressure due to the second pandemic wave that affected nearly the entire country, a report said on Wednesday. The "weak" wage growth will prove to be a drag on the overall economic recovery in the medium term as it will affect household consumption, the report by India Ratings and Research said. An environment of pandemic-led uncertainty and elevated inflation could impact the level of spending and hence the overall demand, it said.
As bank loans to MFIs are mostly unsecured, the Indian Banks Association had requested RBI in December to relax its restructuring guidelines for the MFI sector.
Collection dived to 75-80% in November-December from 99% after demonetisation.
Even today, many MFIs already distribute pension and micro insurance products to low-income households.
The origin of the challenge is the so-called "fresh start" process. Many in the MFI industry apprehend that such a law in India will encourage small unsecured borrowers to default and destroy the credit culture. So, while'Fresh start' is a welcome step as it will free up the debtors from the archaic laws of the colonial era, debtors need handholding and counselling to prevent any misuse, says Tamal Bandyopadhyay.
The Manila-based development finance institution has decided not to guarantee loans directed to Andhra Pradesh, where the microfinance activity has fallen sharply due to strict rules introduced by the state government in October last year.
The sector is in turmoil since the Andhra Pradesh government introduced new legislation to regulate it. The state accounts for a third of MFIs' lending.
The sub-committee, headed by Y H Malegam, is to make recommendations relating to regulation of microfinance activities of NBFCs, especially with regard to issues impinging on borrowers' interests.
Such cold-shoulder by banks also indicates a credit freeze that is hard to overcome, unless the government comes out with credit guarantee schemes for loans given by banks. Since that is not happening, and there is no indication of that too, banks are not willing to listen to RBI prodding.
PM's economic advisory council chairman C Rangarajan has asked microfinance institutions (MFIs) to overhaul their "flawed" business model for sustainability.
There are allegations that MFIs are charging exorbitant interest rates and using strong-arm tactics to recover the loans.
For India's leading MFI-turned bank, the challenge is to stay competitive while pricing its loans
The finance ministry is not in favour of revising norms for external commercial borrowing or hiking the limits beyond $500 million in the near future, but will allow micro-finance institutions to tap overseas markets to raise up to $5 million.
Fitch Ratings on Monday said the shock to economic activity from the latest wave of COVID-19 pandemic will be less severe than the one in 2020, but recovery is likely to be delayed as economic activity dropped in April-May. The global rating agency said there are growing indications that the latest wave of COVID-19 infections will add to risks among financial institutions (FIs) and anticipates that the Reserve Bank of India (RBI) may introduce additional measures to support the financial sector if indications of economic stress mount.
The new regulations by the Reserve Bank of India (RBI) on microfinance have prompted MFIs to go for a makeover, in order to cope with the new limitations imposed on them.
New regulations by the Reserve Bank of India on microfinance have prompted MFIs to go for a makeover.
Investors are shying away from securitised loans of micro-finance institutions (MFIs), as the ordinance issued by the Andhra Pradesh government has slowed recoveries, creating uncertainty around the underlying portfolio.
New players show up after 3 years; northern states take lead in loan growth.
Stung by the controversy over the sudden sacking of the Managing Director at India's largest microfinance institution, SKS Microfinance, lenders have decided to raise corporate governance issues at board meetings of other MFIs.
The year 2010 was a tumultuous one for micro-finance institutions (MFIs) in India.
Two months before the microfinance sector crisis in October, an internal committee of the Reserve Bank of India (RBI) had warned of possible problems in the sector.
The disruptions caused by COVID-19 have more severely impacted small and mid-sized corporates, including NBFCs and MFIs, in terms of access to liquidity.
Most adult Indians should have access to bank deposits, credit and remittance facilities as well as insurance and mutual fund products in the next decade, and technology will play a big role in this transformation, says Tamal Bandyopadhyay.
Finance Minister Nirmala Sitharaman on Wednesday announced Rs 3 lakh crore collateral free automatic loan for businesses, including MSMEs, to benefit 45 lakh small businesses. Detailing parts of the Rs 20 lakh crore economic stimulus package, she said this loan will have a 4-year tenure and will have 12-month moratorium, she said.
Asset quality of banks, which saw some improvement in the second half of 2020, is likely to worsen during the first six months of 2021, according to a survey. The findings are part of the 12th round of bankers' survey carried out by FICCI-IBA between July and December 2020. The survey was conducted on 20 banks, including public sector, private sector and foreign banks, representing about 59 per cent of the banking industry, as classified by asset size.
South leads; North-East at bottom but moves ahead, finds out the IndiaSpend Team
The Pradhan Mantri MUDRA Yojana can lend between Rs 50,000-Rs 10 lakh to small entrepreneurs.
One of the hurdles for MFIs towards becoming banks is an unsecured loan portfolio.
'Q1 is going to bear the brunt of the second wave, exposing full-year GDP forecasts to downward revisions, unless phase-3 of vaccination is executed quickly.'
Even if Mudra steps in to play its main role of refinancing at some stage, the responsibility for the bad loans remains with the banks.
Microfinance institutions' deluge of problems, it seems, is never-ending.
Microfinance companies have been facing a crisis after a crackdown by the Andhra Pradesh government last year in response to allegations they were charging high rates and using coercive recovery practices.
'Common sense says if one can afford, servicing the loans during this period is a better bet than postponing it by three months,' says Tamal Bandyopadhyay.
The Bill - to centrally regulate microfinance institutions (MFIs) - may also cap the rates charged by these institutions or limit margins, that is, the difference between the rate charged from the borrower and the lender's cost of funds.
As many as 30 rural borrowers have committed suicide in Andhra Pradesh in the last few months following their inability to pay back loans taken from microfinance institutions at exorbitant interest rates.
"Banks were not in favour of the proposal due to the unsavoury past experience in India and abroad and that large capital buffer that would be available to the banks sponsored by industrial/business houses would create an uneven playing field with the existing banks," the Reserve Bank said in a statement.
These banks are finding it hard to pick up seasoned bankers at the pay they are offering
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