On 17th Apr 2020, RBI has unveiled its package
to improve the liquidity post COVID. Through
Targeted Long Term Repo Operations 2.0 (TLTRO 2.0)
it will make available Rs.50,000 crore to the Banks
for supporting NBFCs and MFIs and out of the total
Rs.50,000 crore, 50% of this should be given by
banks to small and mid-sized NBFCs and MFIs.
RBI has also allocated Rs.50,000 crore as special refinance facilities
at repo rate (4.4%) to NABARD (Rs.25000 crore), SIDBI (Rs.15000 crore) and
NHB (Rs.10,000 crore) for refinancing to RRBs, Co-operative
banks and MFIs.
If the funds are to be used fully to benefit the microfinance clients
at the bottom of the pyramid, the NEXT MOVE by the Banks,
NABARD & SIDBI is crucial and the following aspects may be
considered by them while formulating products to help the sectors.
By NABARD & SIDBI:
– The refinance support under this COVID package
should not be similar to their normal offering.
– NABARD & SIDBI should design a special line of
credit to RRBs, Co-operative Banks & MFIs
with a longer holiday period at least 6 months
and at an interest rate lesser than their normal rates.
– NABARD and SIDBI shall prescribe to RRBs, Co-ops
and MFIs to pass-on the benefit of a longer holiday
period of 6 months & interest rate reduction they
get to Self Help Groups / JLGs.
– As Small MFIs will not be having BBB rating,
NABARD, SIDBI and Banks should not insist
on BBB rating and as a special case, they
should consider loans to all MFIs, who have adequate
microfinance management system and credit repayment
history.
By Banks:
– As on 15th April 2020, banks have parked Rs.6.9 lakhs
crore with RBI under reverse repo facility at 4%.
RBI has reduced this rate on 17th Apr to 3.75% to
encourage banks to lend to productive sectors.
Banks should deploy these funds in lending to
revive the demand and enable the economy to
bounce back. Banks should come out with COVID
special loan products. For e.g. The COVID
loan product brought out by Indian Bank for
the Self Help Group deserves appreciation-
The product features are Online application,
Simple process, Per member loan Rs.5000,
Holiday period 6 months and the interest rate is 8.1%
compared to the regular interest rate of 12.5%
for this segment. Banks should evolve sector-specific
loan products to push lending to agriculture,
allied activities and MSMEs on a priority.
By RBI:
– RBI should give special permission to MFIs
to lend to the clients up to the individual
limit of Rs.1.25 lakhs (as prescribed by RBI)
but, without observing the no. of lenders norm.
This is the time for acting together by banks,
All India finance Institutions, MFIs and the regulator and
expedite the reconstruction of livelihoods. My earlier
blog post on COVID response by MFIs may be read at
the following link https://drnjeyaseelan.com/blog/
Dr.N.Jeyaseelan.
* Feedback/comments to this article may be sent to the author’s email
authorjeyaseelan@gmail.com
Dr.N.Jeyaseelan,
Chief Executive Officer, Virutcham Academy for Social Changemakers LLP,
Mahindra World City, Chennai. 603 004. Phone / Whatsapp: +91-9244865356