Lenders force small and medium-sized micro-financiers to park fixed deposits with them

Several lenders are forcing small and medium-sized micro-financiers to park fixed deposits with them as security against fresh advances although exposures to micro-lenders are guaranteed by the government.

Some banks are also insisting on personal guarantees, people familiar with the matter said.

“Banks are telling us to park fixed deposits to cover 10-15% of the loan,” the chief executive of a medium sized NBFC-MFI told ET.

The government in June announced a new credit guarantee scheme covering 75% of bank loans to MFI in case of defaults. The National Credit Guarantee Trustee Company is providing this without any guarantee fee.

“Several banks — both in the public sector and private sector — are forcing small and medium sized MFIs to park fixed deposits with them as a security against loans. This is despite the government’s guarantee on bank loans to MFIs,” said P Satish, executive director at Sa-Dhan, an industry body for micro lenders.

“This defeats the purpose of facilitating fund flow to MFIs when they are suffering one of the worst liquidity stresses amid the pandemic,” Satish said. “We have informed the Department of Financial Services about this. We will be taking up the matter with further details in a couple of days.”

The scheme is aimed at ensuring credit flow to 2.5 million micro borrowers that are suffering from lack of funds as MFIs slowed lending to them after the fall in incomes due to the pandemic-led disruptions raised credit risks. The focus of the scheme is to spur economic activity with fresh loans and not for repayment of old loans.

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The government guarantee covers up to 75% of the default. “So we are covering the remaining risk on the loan to MFIs,” a senior bank executive said.

Borrowers, including defaulters up to 89 days and whose existing loan is not classified as non-performing, are eligible for guarantee cover until March 31, 2022.

The scheme was announced by Finance Minister Nirmala Sitharaman in June as part of the economic relief package to the stressed sectors. Guarantee will be provided to banks for loans to NBFC-MFIs or MFIs for on lending up to Rs 1.25 lakh. Interest rate on loans from banks under this scheme is capped at 2% over bank’s marginal cost based lending rate (MCLR).



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