Assam’s MFI bill linked to poll and congressional loan exemption promise ‘moral hazard’: report

Assam’s MFI bill linked to poll and congressional loan exemption promise ‘moral hazard’: report

1970-01-01T05: 30: 00 + 0530

Mumbai, January 4 (PTI) The passage of a bill to control the microfinance sector and the Congress party’s loan exemption promise if elected to power in the April 2021 elections in Assam is a “moral hazard”, according to a report.

As West Bengal also heads towards elections, the Kotak Institutional Equities report warned that such loan waivers can have many negative effects for the financial sector as the amount of outstanding loans is much higher.

In Assam, the current assembly put aside the observations of the RBI and passed a bill to strengthen controls over the microfinance sector regarding loan size limits, pre-registration and authorization. other operational restrictions, while the Congress party has promised loan waivers if elected.

“Either way, we see these developments setting a negative precedent in dealing with credit to relatively sensitive segments and potentially creating moral hazard,” said the report, released on Monday.

The Assembly of Assam passed the Micro-Finance Institutions (Money Lending Regulation) Bill, which in a way introduces a set of regulations parallel to the RBI rules governing the sector, a- he said, highlighting some specific provisions.

These include two lender ceilings for all borrowers and a limit of up to Rs 50,000 for borrower indebtedness for vulnerable segments and pre-registration of lenders with state agencies. . They also include the repayment of the loan to be made in the offices of the panchayat or in public places designated by the deputy commissioners, and a three-month interest moratorium in the event of floods or other natural disasters.

Although Assam contributes less than 1% of system advances, a few lenders like Bandhan Bank and Ujjivan Small Finance Bank have a higher proportion of dependency on the state, he said. .

Highlighting past cases of a deterioration in the credit culture due to events such as anti-CAA unrest last year, the brokerage said that as of September 30, advances whose repayments were owed more than 30 days was 18% versus 5% system-wide average.

The Assam bill has some similarities to Andhra Pradesh’s 2011 law, which plunged the entire industry into crisis, the brokerage said, stressing the requirement for prior registration. with state and other operational restrictions.

In addition, public statements by Assam’s Finance Minister Himanta Biswa Sarma also indicate friction between the state government and the RBI over the provisions of the bill. We have also seen reluctance to sign the Responsible Lending Industry Code (CRL) from part of the industry, he said. PTI AA HRS

Disclaimer: – This story has not been edited by Outlook staff and is auto-generated from news agency feeds. Source: PTI