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Covid woes: Banks’ collection efficiency for micro-loans drops significantly

The foreclosure restrictions were relatively higher in the south and parts of the central region, ”said Rajat Kumar Singh, CEO of MicroBanking and Rural Banking, Ujjivan Small Finance Bank.The foreclosure restrictions were relatively higher in the south and parts of the central region, ”said Rajat Kumar Singh, CEO of MicroBanking and Rural Banking, Ujjivan Small Finance Bank.

Banks saw a significant drop in the efficiency of collection for micro-loans in April and May as borrower income generation was severely affected and staff movements for collection activities in the field were severely affected. limited due to lockdowns in several states amid the second wave of Covid.

Lenders believe that collection efficiency is likely to be ‘volatile’ in the first quarter of the current fiscal year due to intermittent lockdowns, and the number of microfinance clients benefiting from loan restructuring will depend on the how the economic scenario will play out after the lockdowns. . They might be able to know the actual number of accounts needing to be restructured by July.

As small entrepreneurs and individuals continued to be affected under the second wave of Covid, RBI announced the 2.0 resolution framework. for a one-off restructuring plan. Banks and credit institutions can invoke restructuring in this context until September 30.

“A collection efficiency restricted by IME in the inclusive finance sector as of March 31, 2021 was 85%, compared to 81% as of December 31, 2020. As of April 2021, it was 83%. Collection efficiency is likely to be volatile in the first quarter of FY22 due to intermittent blockages. The second wave of Covid was very severe in phases for the whole country, ”Baskar Babu, managing director and CEO of Suryoday Small Finance Bank told FE.

“Due to the uncertainty created by the second wave, we will have to wait a quarter to understand the incident impact on collection efficiency. However, things are gradually improving and we continue to focus on our customers, as they go through these difficult times, ”Babu said.

For Ujjivan Small Finance Bank, at the end of March 2021, 96% of its microfinance clients were paying, in whole or in part. In April, the collection efficiency fell to 88%. In addition, collection efficiency was lower in May than in April.
“As of May, the majority of states were on lockdown with varying levels of restrictions. The foreclosure restrictions were relatively higher in the south and parts of the central region, ”said Rajat Kumar Singh, CEO of MicroBanking and Rural Banking, Ujjivan Small Finance Bank.

According to him, the impact on the efficiency of the collection this time is not as serious as during the first wave.
“We will provide the opportunity for restructuring to all stressed clients. In addition, we will also provide loans to eligible clients to provide them with the liquidity support needed to boost their income. In this way, customers will receive assistance to resume their business activities and get back to normal, ”Singh added.

According to big data analytics company Spocto Solutions, which helps banks with its digital platform on collection-related activities, overall collection efficiency has significantly decreased not only in the microfinance segment, but also in segments such as affordable housing, automobiles and personal loans.
“Bankers work with us to segment borrowers and offer them differentiated solutions. There is a segment that needs to be restructured, while there is a segment that may require a payment deferral of a month or two. If there is a real problem, lenders use us to help borrowers restructure their loans, ”Spocto founder and CEO Sumeet Srivastava told FE.

The ESAF Small Finance Bank said that the outlook for the future looks “bleak” for some time to come, and how quickly the industry recovers depends on customer segments. However, he expected things to pick up by July 2021.
“Customers benefiting from restructuring depend on how the economic scenario plays out after the foreclosure. In general, the MFI sector is recovering faster than any other segment, ”added the bank.

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Abhinav Garg

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