Micro finance companies may allow borrowers to take repeat loans

MUMBAI: Worried about losing business, micro finance companies have expressed willingness to offer fresh loans to their existing borrowers, who have availed the benefit of an additional 60-day loan repayment window, in time of cash crunch.

They plan to allow borrowers to take a repeat loan of up to Rs 60,000. The move, which is also aimed at diffferentiating genuine customers from fraudulent ones, however, has failed to go down well with some lenders.

They feel such an extension may impact repayment culture and could be prone to misuse. “Even borrowers, with the capacity to repay on time, will want to avail of this facility with the intention to hold on to funds,” said industry players.

But according to Samit Ghosh, chief executive officer, Ujjivan Financial Services: “If an account shows an overdue, we feel, it’s better a borrower approaches the existing lender for a fresh loan during this period. As a delay in repayment will be shown as an overdue and credit bureaus won’t be able to differentiate an overdue due to cash crunch from genuine repayment default.”

The prudential asset circular was aimed at giving a dispensation in classifying an asset as non performing asset (NPA). The normal definition is any asset that does not perform for 90 days will be termed as NPA. But now, with an additional repayment window of 60 days, an asset can be classified as NPA only after 150 days.

The circular does not clarify if a delay would attract any extra levy. This is expected to affect the credit bureau score of both the lender and the borrower in case of default by either.