Banks and microfinance players are upbeat about a faster revival in the rural economy with the lifting of the lockdown, even as they say the formal economy could take time to normalise.

Reposing faith in their customers’ abilities to bounce back from the current disruption in business, most small finance banks and payments banks believe that self-employed persons will be able to normalise operations sooner, while it could take some more time for migrant workers to resume work.

Repayment capacity

Paul Thomas, MD and CEO, ESAF Small Finance Bank, stressed that micro-entrepreneurs are much more resilient than bigger companies.

“The advantage of this lockdown is that they have lost business income and wages, but there is no asset loss. They can quickly come back,” he said, adding that customers are asking for two weeks’ time after the lockdown, after which they will start repayments.

On concerns in the microfinance sector, Nitin Chugh, Managing Director and CEO, Ujjivan Small Finance Bank said that though collections were stopped by the bank on March 22, many sectors in the rural economy have not been disrupted.

“Less than 50 per cent of our housing and business loan customers opted for the moratorium. So this means, they don’t need it even now. Even in our microfinance portfolio, a lot of customers have said they can still pay and don’t need the moratorium,” he told BusinessLine .

Demand intact

“The segment of customers we deal with — unserved and underserved — will not be inactive for a long time. There will be demand in their local ecosystems. In the past too, we have seen that microfinance customers are not impacted during such macroeconomic changes,” said Chugh, adding that the bank has not seen much stress in retail accounts.

“I don’t subscribe to the idea that the entire microfinance sector is facing a problem,” he stressed.

“There are microfinance customers in villages that are dependent on the rural economy. A lot of our customers are in allied agricultural activities like dairy, which haven’t got disrupted. Similarly, grocery stores are also still working,” Chugh said, while noting that migrant workers have been impacted.

Thomas attributed his current confidence to the experience in the 2018 Kerala floods. “At that time, about ₹1,960 crore of the portfolio was affected. But we gave a repayment holiday, we supported them and we provided an additional loan to start their business with a moratorium, and now there is only ₹7 crore overdue out of the portfolio,” he said.

Migrant workers

Harsh Shrivastava, CEO, MFIN, also said that local demand has not gone down. “About 15-20 per cent of the rural economy is based on migrant labour. They have to get back to work,” he said, adding that rural economy is not doing very badly at present. “Government measures are also putting some money in their pockets. The devastation is more in urban areas,” he said. However, he noted that credit demand will take some time before it resumes.

According to other players, remittances from migrant labour have come down, which has impacted the rural economy, and they will depend on resumption of the wider economy.

“There will be some impact on remittance in the payments bank model. Other businesses will slowly come back. Remittances will fully recover in 6-9 months and a lot will depend on how the pandemic plays out,” said Rishi Gupta, Managing Director and CEO, Fino Payments Bank.

To take care of at least a part of the rural distress, the government has transferred over ₹36,659 crore using Direct Benefit Transfer in the bank accounts of 16.01 crore beneficiaries during the current lockdown. The government has also allowed the farm sector to resume work.

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