With the government giving greater relaxation in Lockdown 4.0, non-banking financial companies (NBFCs), mortgage lenders, and microfinance institutions (MFIs) are re-opening most of their branches nationwide and disbursing credit, albeit at a slower pace, and enquiries for fresh loans are seeing an uptick.
Repayments have been slow and are cause for concern. Lenders are expecting credit demand to pick up after the second quarter (September).
And, since during the monsoon the propensity of asset acquisition is low, they expect a revival in demand during the festive season.
“We have opened 500 branches in the country and are looking at another 350 in the next three-four days. Footfalls have improved and in the last week or so and we have seen 5,000-7,000 customers walk in to our branches nationwide mainly for repayment and for business enquiries. Enquires are more for tractors and pre-owned vehicles and not as much for other products,” said Ramesh Iyer, vice-chairman and managing director, Mahindra & Mahindra Finance.
Aadhar Housing Finance said it had re-opened almost 86 per cent of its branches and 80 per cent of the branches in the red zone were operating.
“We are seeing normalcy in reopening branches but are not hopeful of doing great business. But definitely we are seeing some momentum,” said Deo Shankar Tripathi, managing director and chief executive officer, Aadhar Housing Finance. Close to 80 per cent MFIs’ offices are open, but operations are negligible. Due to restriction on movement, not many loan officers are able to go out, and group meetings are also not happening.
“The pending files of March have been completed and fresh disbursements, 1,000-1,500, have begun, mostly in the tractor segment. In April, repayments were very low but in the first 15 days of May, we have seen almost 30 per cent collection efficiency. After September, sentiment will improve and the festival season should see an uptick in credit demand,” Iyer said.
“As our customers are reopening their businesses, we are seeing demand for fresh credit. But we are not disbursing fresh credit till the moratorium is over. Demand for credit is there but it will pick up further in two-three months,” said Hardika Shah, founder and chief executive officer, Kinara Capital.
Tripathi said: “In self-construction cases, where the second and the third tranche of loan disbursement is requested by customers, we will be disbursing now. We are expecting roughly 20 per cent of usual monthly disbursement to happen this month. Repayments are picking up. Credit demand will pick up from salaried customers in a month or two after the lockdown is lifted but from self-employed and informal-segment customers it will take time due to the impact on cash flows. It depends how fast economic activities resume.”
MFIs are seeing a surge in demand for emergency loans and accepting new loan applications, but are exercising caution while disbursing credit.
“Loan applications of only existing customers with a good credit history as of February 29, 2020, are being considered,” said Manoj Nambiar, chairperson, Microfinance Institutions Network (MFIN). A majority of MFI borrowers are seeking a moratorium on repayment. Most MFIs too have got a similar moratorium from their lenders after much lobbying.
P Satish, executive director, Sa-Dhan, a micro-finance representative body, said communities were fearful of entry of loan officers from outside and 10-12 per cent of normal credit was flowing, and the same goes for repayment. However, this may pick up by month-end, he added.
For smaller MFIs, resuming operations is more difficult because they haven’t got any fresh bank credit sanctioned from their lenders.
“Operations are almost at a standstill. Only 4-5 per cent of due repayments are happening,” said Rahul Mittra, chief executive officer, Margadarshak Financial Services.