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Demonetisation, a double whammy for microfinance sector

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micro finance in india

Kolkata, November 13: The demonetisation of high-value currency notes has come as a double whammy for micro finance institutions (MFIs), which have temporarily stopped providing credit to their customers while loan repayments have also taken a major hit, industry sources said.

The institutions have deferred the repayment schedule of their borrowers for the next few days. In the last four-five days, repayment collections of about Rs 500 crore to Rs 600 crore ($74-89 million) has been deferred and with the lack of currency supply, the MFIs’ disbursement was also down by around Rs 600 crore.

“A lot of microfinance institutions put disbursement on hold because we need some clarity and it is currently quite ambiguous. We need clarity whether the institutions can collect Rs 500 or Rs 1000 notes from their borrowers as repayments of loans or not. We are not sure about it,” Gurugram-based Microfinance Institutions Network (MFIN) CEO Ratna Viswanathan told IANS on the phone.

The microfinance industry is cash-intensive. Most of the borrowers take loans in cash and they repay loans in cash, particularly in Rs 500 or Rs 1,000 notes. Even many of the borrowers who have bank accounts do not know how to transact through them. Thus, cash transactions in the rural economy, where most of the MFIs operate, become inevitable.

“The MFIN asked institutions to consider putting collections on hold for the next five-seven days. They have deferred the repayment schedule. Repayment collections of about Rs 500-600 crore have been deferred. Disbursement was also down by around the same amount in the last few days as there is lack of currency supply to advance loans,” Viswanathan said.

MFIs record a repayment rate of 99 percent but it took a blow after demonetisation. The sector is worried about taking the business forward in view of the increasing risk of defaults.

“With the scrapping of Rs 500 and Rs 1,000 notes, the industry has been facing a challenge. We are neither able to disburse, nor taking repayments from borrowers with old notes. Our repayment rate fell to 60 percent on Wednesday after the demonetisation was announced on Tuesday night.

“We have started deferring repayments and on Friday, the repayment was down to 70 percent from nearly 100 percent,” Village Financial Services’ Managing Director and CEO Kuldip Maity told IANS.

“Fresh and repeat disbursements have completely been put on hold temporarily,” he added.

It is a double whammy for the industry as borrowers do not possess much cash in hand with new currency to repay loans in time and due to lack of liquidity in the system, MFIs are not able to disburse loans.

“The situation is not expected to be prolonged beyond November 14 or so as we are in discussions with the regulator (Reserve Bank of India) and the Finance Ministry. We need to review the industry’s stance of deferring repayments if the situation prolongs,” Grameen Koota Financial Services’ Managing Director Udaya Kumar told IANS.

The industry, meanwhile, has approached the RBI and the Union Finance Ministry seeking a clarification on how the MFIs should deal with repayments.

“The notification regarding the demonetisation of high currency notes primarily talked about retail customers and there is no clarity about institutional customers.

“We want to know whether it is applicable to institutional customers. As far as repayment is concerned, we want a clear idea on how we can deal with it because the institutions are also in the loan repayment business. Institutions share each and every client’s data with the credit bureau,” Viswanathan pointed out.

The industry is yet to receive any clarity from the RBI and the Finance Ministry, she added.

IANS

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Key equity indices open in red

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Sensex down

Mumbai, Sep 25: The key Indian equity indices opened on a negative note on Tuesday, owing to a weak rupee and rising crude oil prices.

At 9.30 a.m., the wider Nifty50 of the National Stock Exchange traded at 10,918.85 points, lower by 48.55 points or 0.44 per cent from its previous close.

The BSE Sensex which had opened at 36,350.25 points, traded at 36,183.86 points, lower by 121.16 points or 0.33 per cent from its previous close of 36,305.02 points.

So far, it has touched an intra-day high of 36,454.03 points and a low 36,180.16 points.

IANS

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Dena Bank board okays merger with Bank of Baroda, Vijaya Bank

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Merger of Bank

Mumbai, Sep 24 : The Dena Bank board on Monday approved the merger proposal with Bank of Baroda and Vijaya Bank proposed by the government last week.

The government last Monday announced the merger of three state-run banks — Dena Bank, Vijaya Bank and Bank of Baroda — that will make it the country’s third-largest bank with a combined business of Rs 14.82 lakh crore.

In a stock exchange filing, Dena Bank, the smallest of the three banks proposed to be merged, said the consolidation would enable creation of a bank with business scale comparable to global banks and capable of competing effectively in India and globally.

Dena Bank has a total business size of Rs 1.73 lakh crore and is also under the Prompt Corrective Action (PCA) framework of the Reserve Bank of India (RBI) on account of its high non-performing assets (NPAs), or bad loans, which for the Indian banking system as a whole have crossed the staggering level of Rs 10 lakh crore.

Read More : Merger of BoB, Vijaya, Dena banks in 4-6 months: BoB MD

“To be more efficient in the changing environment, the banks in the public sector space need to be bigger to meet the credit needs of a growing economy, absorb shocks and have the capacity to raise resources without depending unduly on the exchequer.

“Consolidation would enable creation of a bank with business scale comparable to global banks and capable of competing effectively in India and globally,” the filing said.

“Amalgamation of our Bank with Bank of Baroda and Vijaya Bank would result in a strong amalgamated bank, equipped with financial cushion to deal with post-amalgamation requirements during the stabilisation phase.”

While making the merger proposal last week, Finance Minister Arun Jailtey said the consolidated entity’s capacity to absorb a weaker bank guided the decision “to propose this merger to the boards”.

The government said the amalgamated entity will have a net NPA ratio at 5.71 per cent, which is significantly better than the public sector banks’ (PSBs) average of 12.13 per cent, and declining further.

“The combined business of amalgamated entities would make it second-largest PSB of the country,” Dena Bank said.

This is the second such exercise in the last 18 months. In the previous mega merger, five associate banks and the Bharatiya Mahila Bank became part of the state-run State Bank of India on April 1, 2017, making the country’s largest lender among the world’s top 50 banks.

IANS

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Sensex ends 536 points lower, Nifty below 11,000-mark

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Sensex down

Mumbai, Sep 24: Slump in the financial stocks along with a weak rupee and high crude oil prices dragged the S&P BSE Sensex down 536 points on Monday and the NSE Nifty50 lost nearly 170 points to close below 11,000-mark — slipping into the red for the fifth consecutive session.

On the other hand, the rupee weakened during the day to trade around 72.59 (4.15 p.m) per US dollar against the previous close of 72.20 per greenback.

With all the major sectors contributing to the sell-off, top sectoral losers were banking, auto and finance.

At 3.30 p.m, the wider NSE Nifty50 provisionally closed at 10,974.90 points, lower 168.20 points or 1.51 per cent from the previous close of 11,143.10 points.

The BSE Sensex, which had opened at 36,924.72 points, provisionally closed at 36,305.02 points, lower 536.58 points or 1.46 per cent from the Friday’s close of 36,841.60 points.

The Sensex touched an intra-day high of 36,945.50 points and a low of 36,216.95 points.

IANS

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