Covid-19: MSME loan portfolio of NBFCs, MFIs likely to see collections drop post moratorium as well

By Sandeep Soni | 13th April 2020 | Financial Express

Credit and Finance for MSMEs: The effect would be more visible in the urban and semi-urban portfolios before it expands to the rural market.

Credit and Finance for MSMEs: Small business loan portfolios of non-banking finance companies (NBFC) and microfinance institutions (MFI) are expected to see a decline in their collections even after the three-month moratorium period is over, CARE Ratings said. “Amidst lockdowns, the earning capacity of this class of society, as well as that of small traders and shopkeepers, would be severely affected,” it said in a note on Monday. As a result, the microloan and MSME loan portfolios of NBFCs and MFIs are “likely to experience a significant drop in collections post the moratorium period as well.”

“This is unprecedented. While there will be some players who may have a higher collection and some may have a lower collection and we don’t know the range but it could be 75-80 per cent,” Sanjay Agarwal, Senior Director, CARE Ratings told Financial Express. The MSME loan portfolio of NBFCs and MFI might see a significant increase in delinquency levels amid the Covid-19 impact as the lower-income groups, typically labourers and daily wage earners may be hit hardest, the rating agency had said earlier.

The effect would be more visible in the urban and semi-urban portfolios before it expands to the rural market. “If the government doesn’t give a good bailout to MSMEs then there will be a significant drop in the recovery. I think there would be 30-40 per cent impact. But the impact will be more in urban than rural as rural businesses are more credit conscious than urban businesses,” Rajiv M Ranjan, Secretary, Association of NBFC P2P Platforms told Financial Express.

Finance Minister Nirmala Sitharaman had recently announced few measures for MSMEs including raising the threshold for default by MSMEs sharply from Rs 1 lakh to Rs 1 crore under section 4 of the Insolvency and Bankruptcy Code (IBC), 2016. “Now they (MSMEs) can focus on their work rather defending themselves before NCLT to save their business and assets. It will also help the judicial infrastructure as the number of cases to be filed will drastically reduce for the time being,” Rajesh Narain Gupta, Managing Partner, SNG & Partners had told Financial Express Online.