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NBFCs and MFIs cripple under Demonetisation

Micro-finance institutions (MFIs) and non-banking finance companies (NBFCs) could face challenges in mobilising monthly collections from their small retail customers after the government’s move to withdraw Rs 500 and Rs 1,000 notes. 
●    MFIs lending to rural customers without access to bank branches and post offices may see some near term difficulty in collections.
●    NBFC-MFIs and small finance banks (SFBs) may not be significantly impacted in the long term considering the cash flows of the borrower segment are usually in the smaller denomination. 
●    NBFCs catering to self-employed segments, SMEs and other small businesses which transact primarily in cash, may experience near term delays in payment due to difficulties by these customers in converting their holdings within the stipulated time. 
●    Housing finance companies (HFCs) catering to the self-employed segment, particularly in small ticket loans may also experience payment delays.
●    Similarly, loan against property (LAP) business faces asset quality risk because of aggressive lending practices of many banks and NBFCs. 
●    In this case, unaccounted income is taken into consideration while deciding on income eligibility and loan amount for a borrower.

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