RBI to rescue by relaxing Bank rating norms ASAP!! 

Banks have been offered a liquidity support of Rs.50,000 crores by RBI for on-lending to NBFCs and MFIs. Out of this, Rs.5000 crore was earmarked for Small NBFC MFIs, those having assets size of less than Rs.100 crores outstanding. Even though the funds have been earmarked, it will not reach the most of the small MFIs as this funding will be only accessible to MFIs with  BBB bank rating, which most of the small MFIs may not have this investment grade rating. In Tamil Nadu, out of more than 40 small MFIs, only one MFI is having BBB rating. Moreover, RBI has asked the MFIs to give a 3 months moratorium to its clients, but many banks have not extended the same moratorium to MFIs.

Small MFIs had a little cash with them and managed the two months March and April – paying their staff salaries even though repayment collections from the clients almost stopped. Some MFIs have paid the part salaries for the month of April. MFIs have resumed their operations since 4th May, but still, it is not in full swing and it is not in all areas. Even in permitted areas, the field staff is not able to enter many villages for their work. Hence, collection efficiency during May and June will come down and it will not be like normal days. Paying the salary for their staff for May will be tough for small MFIs. 

RBI should advise the banks to lend without insisting on BBB rating for small MFIs as a special case during this COVID period and make banks to give the moratorium of 3 months to MFIs. If this is enabled, this 5000 crore earmarked funds by RBI for on-lending by banks to small MFIs, will help 25 lakh families (assuming @Rs.20,000 per borrower) in rural areas and will benefit almost 1.25 crore members at the bottom of the Pyramid. NOW, RBI TO RESCUE SMALL MFIs BY RELAXING THE BANK RATING NORMS ASAP. 

#COVID-19 response by Banks, #Small MFIs, #Covidactioncollab