NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, January 12, 2017

Demonetisation of high-value currency notes has hit repayments of micro loans, many of which originated in Uttar Pradesh and Madhya Pradesh and were adversely impacted following political intervention by local leaders and rumours of loan waivers, Rating Agency ICRA has said.

Separately, a Crisil study showed that nine per cent of micro enterprises are facing trouble servicing debt and paying salaries and unorganised players are expected to suffer most due to lower growth expectations in the second half of this fiscal.

Pointing out that there has been a temporary disruption in the liquidity available in the hands of people, impacting near-term economic activity, ICRA said NBFCs’ inability to accept repayments in old currency, shortage of valid currency among borrowers, and disruption in borrowers’ regular business resulted in an adverse impact on the collection efficiency in the various retail loan pools securitised by NBFCs.

Securitisation is the process of pooling various types of debt such as mortgages and car loans, and packaging that debt as bonds, pass-through securities, or collateralized mortgage obligations, which are then sold to investors.