On Friday, Reserve Bank of India governor Shaktikanta Das in an emergency move, announced a three-month extension on payment of instalments (EMIs) and repayment of all loans that are outstanding as on March 31, 2020. This comes at a time when the economy is under duress from a lockdown imposed to control the threat of the coronavirus pandemic.
Forbes India spoke with various non-banking financial companies to determine the impact of this announcement on different kinds of borrowers. Here’s a snapshot.
Hemant Kanoria, chairman, Srei Infrastructure Finance. Image: Lucas Jackson / Reuters
Company: Srei Infrastructure Finance LtdFocus Area: Construction Equipment Finance
Impact of RBI announcement: The firm typically lends at an interest rate of about 11.5% to 12.5% to borrowers. Due to the complete lockdown in the construction and building sector, NBFCs had been receiving requests for loan extensions; this will help avoid NPAs in the ecosystem.
Management reaction: Hemant Kanoria, chairman of the NBFC, says, “There is a problem of liquidity as equipment financing has come to a complete stop. Thus, these policies need to be implemented immediately as there are only a few days left for the new loan cycle to start.”
Company: IIFL Finance LtdFocus Area: Gold loans, home loans, MSME loans
Impact of RBI announcement: The increasing disruption in cash flows has forced borrowers to defer payments, hurting their credit scores; this will give them the tenor to pay up later.
Management reaction: Sumit Bali, chief executive officer and executive director of the company, says, “Bonds will infuse a lot of liquidity in the system. With the rate cuts, interest rates will certainly come down, which can be passed onto the customers.”
Company: Shriram City Union Finance LtdFocus Area: Small-ticket retail finance, such as personal and two-wheeler loans
Impact of RBI announcement: Most customers in rural and semi-rural areas do not have access to the internet and thus, it is a tricky situation to cater to those customers. While small-loan borrowers would not largely benefit from a drop in interest rates, if banks pass on the benefits, NBFCs will be able to pass it on further.
Management reaction: YS Chakravarti, managing director and chief executive officer of the firm, says, “We were receiving several requests to postpone payments by a month. The lockdown has hit poultry, fisheries and allied sectors hard, and that has impacted their ability to repay. The loan extension time period will allow stressed small business owners to repay later in rural and semi-rural areas.”