Small business lender U GRO Capital gives 3-month moratorium to help borrowers manage cash flows

BSE-listed small business lender U GRO Capital has announced three-month moratorium for its customers on the repayment of loans prescribed by the Reserve Bank of India recently. The company, which has disbursed over Rs 1,200 crore in more than 7,700 small business loans as of February 2020, said it “retains significant liquidity and a very high capital adequacy ratio.” “Three-month moratorium on loan repayment is a move in the right direction, as it will help small businesses in managing the cash-flow as well as paying salaries to their employees,” Shachindra Nath, Executive Chairman and Managing Director, U GRO Capital told Financial Express Online.

U GRO Capital had conducted a survey among its customers to understand the “qualitative and quantitative impact” of Coronavirus on them.  The survey saw responses from approximately 1,000 customers across eight sectors, 69 subsector and 9 cities, covering manufacturing, servicing and traders segments. According to the survey, “because of the ongoing nationwide lockdown, the SME sector is going through severe liquidity stress and as a result of that the companies are forced to either shut down the business temporarily or operate at a significantly reduced capacity,” Nath added.

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Amid the Coronavirus pandemic, there are possibilities of microloan or MSME loan portfolios of NBFCs and microfinance institutions (MFI) seeing a significant increase in delinquency levels amid as the lower-income groups, typically labourers and daily wage earners are likely to be hit hardest, as per the CARE Ratings analysis of the industry-wise impact of Covid-19. The risk of delinquencies also exists for financiers offering unsecured loans to SMEs who typically rely on the assessment of the estimated cash flows with high yield.

Finance Minister Nirmala Sitharaman, in order to provide relief to MSMEs from financial distress, had recently raised the threshold for default by MSMEs sharply from Rs 1 lakh to Rs 1 crore under section 4 of the Insolvency and Bankruptcy Code (IBC), 2016. “This will by and large prevent triggering of insolvency proceedings against MSMEs,” a press note issued by the Finance Ministry had said.