India’s non-bank financiers are placing their faith in rural demand and expect quicker recovery in these areas even as the coronavirus continues to affect demand in the urban centres.
Consumer durables lender Bajaj Finance believes that the rural areas will be the fastest to bounce back. The lender has more presence in rural India as compared to urban parts of the country. The confidence emerges from the larger number of green zones -- areas least affected by coronavirus -- in rural locations. Of the 2,392 points of presence for Bajaj Finance, 1,357 points or 57% are in rural centres from which 345 rural points are in green zones. Also, the lender's 201 urban points fall in the green zone.
“We believe that the rural business will come back the fastest but it is tough to say to what degree," said Rajeev Jain, managing director, Bajaj Finance.
Mahindra Finance, a non-banking financial company (NBFC) focused on semi-urban and rural areas, has also witnessed a pickup in collections. The company said that its farm loan customers were among the ones who were willing to repay during the covid-19 lockdown and since on-ground collections were hit, these customers were given options to pay digitally.
“We very strongly think that given the good harvest in most of the states, the farm cashflow is holding up and we are already witnessing it through collections during even these periods," said Ramesh Iyer, vice-chairman and managing director of Mahindra and Mahindra Financial Services. The moratorium has been given up to May and the company expects that between June, July and August, the customers will start paying their installments, he added.
“The ones who did not take the moratorium largely belong to the farming community where they felt that their cashflows would improve and they would be able to pay," Iyer said adding that 75% of Mahindra Finance customers availed the moratorium.
Experts believe that the rural economy has largely been shielded from the ill-effects of covid-19 as compared to their urban counterparts. While the ongoing lockdown has hit sales of farmers’ produce, the situation for businesses in urban centres is far worse with a greater number of red and containment zones.
According to Umesh Revankar, chief executive, Shriram Transport Finance, rural customers are not really looking for a moratorium mainly because they have had a good rabi harvest.
“They are able to sell the harvest and get paid for it and therefore the ability of rural customers to pay in the month of May is always good. The presence of greater number of green zones also helps them to move their produce," said Revankar. As of 31 December, Shriram Transport Finance’s assets under management (AUM) stood at ₹1.08 trillion. Of this ₹43,490 crore is from rural customers and the rest from urban. That apart, of the 1,714 branches it had as on 31 December, 831 were in rural locations and 883 in urban centres.
Revankar said that while rural credit demand has been but non-bank financiers are not in a position to lend to them because of the unavailability of moratorium from banks. “Now, as the Kharif sowing season starts, NBFCs will start lending, depending on how the liquidity condition eases out," he said. India’s non-bank lenders have been facing mounting challenges as banks they borrow from refuse to allow the three-month moratorium, even as the customers of these NBFCs get the deferment benefit. However, some public sector banks have been allowing the deferment and earlier this month State Bank of India (SBI) also decided to give moratorium to non-banks on a case-to-case basis.
Analysts, too, are betting on the rural ecosystem coming back much more strongly for lenders than urban markets. Emkay Research pointed out in note on 5 May that the advantage would stay with micro-finance institutions (MFIs) and service-based industries in green zones (mostly rural) where consumption is driven by local factors, compared to manufacturing small businesses which are more dependent on urban consumption.