Reopening of services to depend on permission from local authorities: NBFCs

While the government has allowed non-banking financial companies (NBFCs), including mortgage lenders and microfinance institutions (MFIs), to start operations, albeit with bare minimum staff, resumption of services by them will depend on permissions from state governments and local authorities.

The shadow lenders are holding discussions and formulating plans on how to make things work.

“It depends on the local government what they are allowing and what they are not. The Delhi government has said it will not permit any relaxation in the lockdown measures. Similarly each state may have its own views. We are prepared to start operations but in how many areas operations will start we cannot say as of now,” said Umesh Revankar, managing director and chief executive officer (MD & CEO), Shriram Transport Finance.
“We still have to get permissions from the relevant local authorities. Collections will not happen at large scale. But areas which have not been categorised as ‘hotspots’, there probably some activities can start,” said Deo Shankar Tripathi, MD & CEO of Aadhar Housing Finance.

Although the Centre has allowed shadow lenders to start operations, it has not allowed resumption of operations in hotspots and has not permitted field activities. This will affect the collection activities of the lenders.

“It is possible to disburse loans to the higher segment as those could be processed online. However, the informal segment, wherein people are not so tech savvy, physical presence is required to disburse loans. Lenders whose customer base is not so tech savvy, they won’t be able to do much during this period. The bigger firms will be able to carry on disbursement activities,” Tripathi added.


“As of now, the entire lending value chain is operating in the digital mode — end to end,” said Abonty Banerjee, chief digital & marketing officer, Tata Capital. “We will be channelising critical functions with only essential numbers required to come to our offices or branches. This includes functions such as operations, finance, regulatory and select customer service teams. Team members will be rotated to ensure lean workforce management during this period. Offices and branches, or employees coming in, from known Covid-19 hotspots will be excluded,” said Sachin Chaudhary, chief operating officer, Indiabulls Housing Finance.
Even though microfinance operations are expected to resume, collections and group meetings would remain suspended over the next few days. Microfinance Institutions Network (MFIN) is issuing a detailed set of guidelines for employees, branch set up, and also for client interactions.

“Operations in green zones will resume with skeletal staff (one-third of normal employee strength) to maintain social distancing, and proper arrangement of masks/gloves and sanitizers. Branches will be sanitized before starting work and employees will be sensitised on hygiene and do’s and don’ts,” said Manoj Kumar Nambiar, chairperson, MFIN.

In green zones, a limited number of field staff is expected to join work, even though disbursement would be marginal. The staff would mostly be deployed to sensitize the rural borrower about current situation and repayment schedule.

“We do see some payments being made by clients who may not want moratorium, and also loans to existing clients who will need credit. We will endeavour to get the opt-in and opt-out forms signed by clients and then manage the process. Those who don't want moratorium will repay on a one-to-one basis in the centre meeting place and rest will pay from June 1,” Nambiar said.
The Reserve Bank of India (RBI) had asked all lenders to offer moratorium to borrowers on repayment of all term loans from March 1 to May 31.

The Finance Industry Development Council (FIDC), an industry body representing NBFCs, has issued advisory to NBFCs saying members may decide to open such of their branches/departments as are considered absolutely necessary and keep the branch open for minimum hours only, and they should ensure that there is no overcrowding in the offices.

Some of the banks, NBFCs, and big MFIs, which have enough liquidity support, are planning to extend fresh credit in the form of top-up loans to rural borrowers with good credit history. For example, Thrissur-based ESAF Small Finance Bank is planning to roll out special top-up loans called Covid loans, which would have a payment tenure of about four months. While as a bank, ESAF was operational, over the next few days, field operations in green zones are expected to resume marginally.

“For the time being, we will extend Covid loans, only to existing customers, who have no NPAs (non-performing assets) as on March 1, 2020. These are pre-approved loans of Rs 10,000 to 30,000 with no processing fee, and are payable after four months,” said K Paul Thomas, MD & CEO of ESAF. Also, a large part of the disbursement would be through digital channels.
Gold loan lenders to open 90% of branches

Kerala-based gold loan lenders are planning to open 90 per cent of their branches from Monday and expect around 10-15 per cent growth despite Covid-19.

These companies are prepared to lend more to same customers as price of the gold they have mortgaged has gone up sharply and so has their eligibility for higher loan. The companies are also looking at giving moratorium to existing customers.  

Muthoot Pappachan Group will start 90 per cent of the 4,200 branches across its four NBFCs. There has been good demand for small loans even before the lockdown, and there would be requirement of credit post lockdown to resume businesses, said its Chairman and Managing Director Thomas John Muthoot.

Agrees K R Bijimon, chief general manager of Muthoot Finance. It will open 90 per cent of its 5,000 branches (including 500 MFIs). The company, which got around Rs 40,000 crore book, expects to grow around 10-15 per cent.

The average price of gold when they were mortgaged with these companies was much lower and now prices are above Rs 45,000 per 10 gram. Many customers badly need cash after nearly a month of lockdown and no or lower income. All of them are expected to take higher loans against the same gold they have mortgaged and new customers are also expected to come. 

V P Nandakumar, MD & CEO of Manappuram Finance, said his company's operations would resume at a moderate level, with fewer walk-in customers initially. However, many of the existing customers are using digital modes to transact. 
(With inputs from T E Narasimhan)

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel