Tamil Nadu asks private banks, financial institutions to stop loan collection

KOLKATA: The Tamil Nadu state has ordered private banks, small finance banks and micro lenders to refrain from collecting loan repayments till further notice, raising the spectre of other states following suit that could create chaos and defaults.

But lenders say that they had anyway stopped doing so after the Coronavirus outbreak crippled economic activity and look forward to guidelines from the regulator in formalising a structure on how to go about doing business once the dust settles.

The advisory from Tamil Nadu chief minister Edappadi Palaniswami had initially stumped lenders. It directed them not to collect ``daily/weekly/monthly installments.’’ The order has also threatened about taking criminal action against violation.


"We soon realised that this is in line with our own advisory. In such a situation law of the land takes primacy," said Manoj Nambiar, chairman of the Microfinance Institutions Network (MFIN), the self-regulator for NBFC-MFIs. "We will take a stock of the situation after April 14," he said.

MFIN has advised its members against sending the 2 lakh-odd microfinance field workers to collect repayment as a caution against coronavirus epidemic.

The Tamil Nadu government order is no different, except that it's backed by the administration.

"We cannot put our staff at risk. We have already suspended repayment collection and loan disbursement across the country. The government direction is not going to change anything," said Bandhan Bank managing director Chandra Shekhar Ghosh. Bandhan Bank controls about one-fourth of the Rs 2.1 lakh crore outstanding micro loan pie.

Ghosh said that the bank's micro loans would not be treated as overdue since under the loan agreement with borrowers, it is the bank's responsibility to provide doorstep service to collect repayment. "So, customers are not at default," he said.

With collection coming to a halt, NBFC-MFIs would face difficulties in repaying their bank loans. The smaller ones are facing liquidity issues in paying salaries and meeting other administrative expenses.

MFIN has sought the regulator's intervention for back-to-back funding support from banks to tide over the liquidity tightness. It has also requested for regulatory forbearance in asset classification and provisioning rules.