In so far specifically we are concerned it doesn't make much difference to us: PH Ravikumar

RBI relaxing income recognition, asset classification norms for small loans in the wake of demonitisation will definietly be beneficial for NBFC's and other medium to long term financial institution, but will not impact microfinance instritutions like Bharat Financial, says PH Ravikumar in an interview with ET Now. Excerpts from the interview:

ET Now: Now first tell us how big or how small or how important is this measure that has just come in?
PH Ravikumar: It is important for some of the participants I would say in so far as the microfinance participants are concerned the current rules in regard to income recognition and asset classification which apply are the same as those for non-banking finance companies which is 90 days if there is an overdue principle and interest repayment has not happened they are overdue this has to be provided. But then you classify the assets as sub standards, doubtful and loss assets over a stated period.

In so far specifically Bharat Financial inclusion is limited is concerned it doesn't make much difference to us because our current asset recognition and income recognition norms are more stringent than Reserve Bank of India. We at the end of 180 days we provide full amount Reserve Bank does not require that therefore some of the sectoral participants might need it, my immediate reaction is that it will be needed not so much by microfinance institutions but it will be needed by the NBFCs which are exposed to lower income groups they would need it.

ET Now: Just a quick perspective because the concern is really about what this would mean for the current NPA situation, what do you think would be seen as the net impact?
PH Ravikumar: Again as I said for microfinance institutions particularly like us because our repayments are weekly repayments. If you take urban microfinance institutions particularly the ones that are in the process of becoming small banks they have monthly repayments so it will be more useful to them than for rural microfinance institutions like us. The second is as I said the NBFCs particularly which are exposed to lower income groups the lower middle class they would need this not all of them but some of them which have taken LAP exposures or I would say large housing loan exposures these two segments to lower middle class I think it should give them some breathing time.

ET Now: What do you make of this itself because this means that this entire relaxation of 90 days is only for a smaller period covering only the dues just between November 1 and December 31st and that would probably mean that these MFIs, NBFCs and the housing finance companies will probably still see higher amount of NPAs over the coming few months?
PH Ravikumar: In fact I support what RBI has done that it is a temporary window allowed to tide over the situation cost because of the demonetisation effect and the cash shortage and the migration from cash economy to let us say digital or banking system migration by all the participants. So they are providing you a transition time for migration so I am totally with them that this should apply only in respect of instalments which have fallen due around the period the demonetisation was announced and which have been impacted.

If the person was anyway defaulter why should he gets more tax if he has already defaulted. The other issue I would say is that while RBI says this is a transition is a temporary measure RBI needs also to be have an open mind because there could be some segments of economy particularly in the lower middle class as well as around the economically weaker sections of society which may need a longer period of handholding which we will not be able to decide today but we will need time as we study the impact let us say in the four to six weeks and if at that time it is felt that more time is needed RBI should have an open mind for such longer period of migration.