Collections at small finance banks feel the heat of COVID-19 second wave

Small finance banks are beginning to feel the rising heat of localized lockdowns and the advancing pandemic wave, as the Corona Virus spreads to India’s small towns and hinterland.

Rajeev Yadav, CEO, Fincare Small Finance Bank, stated, “The disease is spreading much faster, especially in smaller towns. Rural customers are, however, less impacted. There have been some delays in collections for the last few days. Collections have been hit only 1-3% due to the second wave.”

Unlike last year, the small finance banks now have a better collection machinery and telecalling measures to ensure that the pandemic’s impact is limited.

According to the head of another small finance bank, “Microfinance loans are seeing a small reduction in collection. However, by the end of the month, we expect it to bounce back. Housing loans and car loans to informal salaried customers are also seeing some impact. A strong message has been sent to all micro-enterprise customers this time that they can avail of the prevailing working capital limit for at least two months.”

According to rating agency ICRA, the microfinance industry is likely to face asset quality pressures in the near term due to the recent surge in infections and localized restrictions. The majority of Microfinance Institutions (MFIs) will be able to withstand any stress due to their improving collection efficiency and good on-balance sheet liquidity, the rating agency said in a recent report.

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