The Kerala government has approached the Centre to put in place a moratorium on repayment of loans till December 31 in order to provide relief to individuals in the unorganised sector, MSMEs, agriculture and others adversely affected by COVID-19 pandemic and the subsequent lockdown.
Kerala has sought a moratorium of loans without accrual of interest and penal interest during the moratorium period.
Kerala Finance Minister K N Balagopal, in a letter to Union Finance Minister Nirmala Sitharaman, said the impact of the second wave induced lockdown has adversely affected the economic and social well-being of all sectors of the society.
“…it is felt that the burden of repayment of the loans taken by individuals, especially those in the unorganised sector, MSMEs and agriculturalists is particularly onerous at this time, and these sections need some relief by way of moratorium on the repayment of loans at least till December 31, 2021,” Balagopal said in a letter dated June 16.
He said the state government has taken all steps to ameliorate the hardships faced by the people, especially the vulnerable sections.
“I request your kind intervention to put in place a moratorium on repayment of loans at least till December 31, 2021 without accrual of interest and penal interest during the moratorium period,” he said in the letter.
The Finance Minister pointed out that the economy of Kerala has been under considerable stress since 2018 due to successive natural disasters including the massive floods which lashed the state wreaking havoc in most of the districts.
The outbreak of COVID-19 in early 2020 further exacerbated the stress on the economy, he added.
The state government had on last Thursday announced lockdown from May 8 till May 16.The government has also restricted physical loan recovery during the lockdown period.
Lending and collection operations in Kerala is likely to take a hit with the state government restricting service to only three days in a week to check a surge in Covid cases.
The state government had on last Thursday announced lockdown from May 8 till May 16.The government has also restricted physical loan recovery during the lockdown period.
The state has currently more than 4 lakh active Covid-19 cases and a test positivity rate above 25%. Many villages and municipal wards with a test positivity rate above 30% are containment zones where there is a complete lockdown.
Mathew Muthoottu, managing director of Muthoottu Mini Financers (MMFL), said that the Kerala government order against recoveries during lockdown will have an impact on the cash-based recoveries of all banks and NBFCs.
“However latest measures do not stop from online transactions. Our branches are open and transacting business with a limited number of employees on alternative days as per the government norms in Kerala. It will be difficult for the customers to remit the loan payment on the said timeline. Keeping in mind the inconvenience of the customers, we are encouraging them to use our digital platforms to fulfill their requirements,” he added.
Top official of a private sector bank told FE that productivity in branches have fallen with the restrictions imposed.
“Our gold loan disbursal is likely to be affected due to the restrictions. People take gold loan for emergencies and will take it from unorganised players if banks and NBFCs are closed. On the collection side we expect minimal impact as people who know and are worried about credit history will make an effort to pay on time. Small traders and shops are likely to fall back on payment due to a fall in income,” he said.
VP Nandakumar, MD and CEO, Manappuram Finance, said that disruptions will be minimised with customers increasingly using digital applications for transactions.
“In microfinance, although the centre meetings for collections may get interrupted temporarily, we have observed that customers are increasingly utilising the digital channels to make payments directly from their bank accounts. A large part of our collections now take place through the digital mode. For instance, in our gold loans portfolio, the larger share of our customers has adopted the online gold loan (OGL) platform,” he added.
“The key factors affecting collection efficiency are the availability of cash flow and the logistical issues faced, vis-a-vis physical collection.However, our digital collections are now active and customers can pay their loans digitally,” said Paul K Thomas, MD and CEO of ESAF Bank.
“Right now our focus is to bank on our existing large customer base, which will ensure revenues. The actual growth we clock this year will depend on how long the pandemic will last and other related external factors,” he added.
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