Repayments by microcredit borrowers in the eastern and north-eastern regions, who have been hit by the dual impact of pandemic and natural calamities,is currently lower than the national average.

As per estimates available, the collection efficiency in the eastern and north-eastern region, is lower by 5-6 percentage points when compared to the national average.

“After the end of the moratorium (in August), the performance (of this region) has been encouraging, but due to several reasons it is not at par with some of the other well-performing States. There are also some local-level disturbances (which is impacting collections). September was the first month after moratorium, so we still don’t have the data ready. But based on what we are hearing from institutions, it is currently lower by about 5-6 percentage points,” Alok Misra, CEO, Microfinance Institutions Network (MFIN), told BusinessLine .

The overall collection efficiency in the microfinance sector has improved to around 85 per cent as of September-end, up from around 75-80 per cent in August. However, collections in east and north-east still hover at around 78-80 per cent. While Cyclone Amphan swept West Bengal and parts of Odisha, Bihar and Assam were affected due to torrential rain and floods in several parts of the State.

The natural calamities disrupted businesses across these States, which were already reeling under the impact of Covid-19-led lockdown, thereby impacting repayment capacity of borrowers.

It is to be noted that east and north-east together account for nearly one-third of the total NBFC-MFI portfolio, which stood at around ₹72,170 crore as on June 30. The east and north-eastern region account for 34 per cent of the total microfinance book, followed by South (25 per cent), North (15 per cent), West (15 per cent) and Central India (11 per cent), as per MFIN data.

Five top States in terms of loan amount outstanding for NBFC-MFIs are Bihar, Karnataka, Tamil Nadu, Odisha and Maharashtra, accounting for 48 per cent of the gross loan portfolio.

Naturally, any impact on repayment capacity of this region might affect the asset quality and lead to a spike in NPAs.

Repayments to improve

According to Manoj Kumar Nambiar, Managing Director, Arohan Financial Services Ltd, States such as UP, MP, Chattisgarh, Gujarat, Rajasthan and Tamil Nadu are behaving quite well in terms of collection efficiency, with some of them such as Punjab, Haryana, Rajasthan and Gujarat inching closer towards 90 per cent in terms of collections. However, the eastern and north-eastern states have reported slightly lower collection efficiency.

“Eastern and north-eastern region has been affected by floods and manpower reverse migration, which has impacted the income levels. But the good news is that they are now going back and it is a matter of time that their income starts coming back (to previous levels). Plus, in some States such as West Bengal, the intra-State train, which is the normal mode of travel for most people, is yet to start. Once that happens and migrants who have gone back start remitting money, the revival would be faster,” said Nambiar.

Chandra Shekhar Ghosh, Managing Director and CEO, Bandhan Bank, feels the region may come back to normalcy by the end of this quarter and collections and repayments would come back on par with the national average.

Spike in NPAs

The MFI industry, which has been used to 98-99 per cent collection efficiency, could witness a spike in delinquency and higher NPAs if collections do not improve.

“The industry is used to collection efficiency of 98-99 per cent, so if it is anything less than that, then the possibility of delinquency will increase. Now that in September the moratorium is finished aging will start, slippages may happen, and at some point of time it will get difficult to reactivate the account. So, this quarter is very critical. Assuming a customer doesn’t pay these three or four months, then it becomes an NPA and once that happens, then everything goes for a toss because then you will not get further credit and the burden of repaying three EMIs would be onerous,” Nambiar pointed out.

So, one of the key tasks for lenders would be to talk to customers about activation by paying a tleast a portion of their instalment. Unlike earlier times, there is intent among customers to repay, he added.

According to Alok Misra, as long as the industry sticks to the norms and follows the Code for Responsible Lending, then there should not be much of a problem.

“Restructuring should not be more than 4-5 per cent. In most parts of India, the collection efficiency is 80-85 per cent, and we are expecting this to improve further in October. So, the requirement for restructuring may not be big,” he said.