At the start of Pandemic RBI came out with a moratorium on Loan repayments and on 22 May, extended it on term loans till 31 August following the lockdown. Now the moratorium period is over and both Banks and NBFC can collect payments on their advances.
Microfinance Institutions Network (MFIN), an industry association for the microfinance industry has come out with a release saying that “There could be borrowers who might be facing stress. All providers (of microcredit) agree that we must continue to show empathy with these borrowers and allow them time to get on their feet, even though credit discipline is important”. However, the association has added that the “credit discipline is important”.
This is just the start of problems for Industry. While the words of empathy and sympathy are doing rounds, the actions on ground are much harsher. For the financial institutions, there is no easy choice. Pressure can drive creditors to bankruptcy, and lack of it will be bad for their own balance sheets.
We spoke to a bank manager of one of the largest Public Sector Bank and he said “Empathy is okay, but those with cash are also not willing to pay. Their priority is current account instead of an EMI, and they think we will not act. They must understand that moratorium is over, and our collection pressure is way past our discretion to give any more relaxion”
It seems at an operational level the verdict is clear – collect the loans.
For the industry there is hardly any choice. Non payment of earlier dues has already cut them off from any more credit linked liquidity, business models are collapsing by the lack of demand and even those lucky few who have full order books, have severe supply side constraints.
While MFIN has come out with a toll-free number 1800 102 1080 to address any grievance, a non-payment of loan can hardly be called problematic.
While the banks are all ready to push industry into defaults, they simply do not have mechanisms to handle the volume of upcoming loan restructuring requests.
On its part Finance Ministry is doing everything it can i.e. talking to lenders. Its another matter that the talks will be inconsequential as loans are the core business of any Indian Bank and unless government provides mechanism to get out of the Covid-19 mess – there is no green shoot. RBI sis its part, now its for government to provide direction with policy guidance.
