Demonetisation: Bandhan Bank Stops Micro-Credit Disbursement
A woman receives a micro-loan during a meeting organized by a microfinance in Sadasivpet, India (Photographer: Adeel Halim/Bloomberg)

Demonetisation: Bandhan Bank Stops Micro-Credit Disbursement

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Microfinance-turned-bank Bandhan Bank on Tuesday said it has suspended its micro-credit disbursement after the government demonetised Rs 500 and Rs 1,000 notes on November 8.

"We have stopped micro-credit lending since the first day of currency ban came into effect and it will remain closed till Saturday (November 19). But collection is continuing," Bandhan Bank Chairman CS Ghosh said on Tuesday.

"Even if we get Rs 2,000 currency notes, we can't disburse it as my customers may not be able to use it and have to give interest," he said.

Bandhan Bank is still a leading microfinance institution and most of its business is through micro-lending and collection.

"We usually disburse about Rs 100-125 crore daily. We are not getting that kind of cash," Ghosh said.

MFIs cannot accept the demonetised high value currency notes as they are not banks, and collection is impacting the industry. The microfinance industry is expected to collect Rs 600 crore a week but it has almost stopped.

"If someone comes to repay Rs 300 as instalment, we can't give that MFI customer Rs 200 if the individual comes with a Rs 500 note," Ghosh said.

Bandhan has collected about Rs 1,500 crore since the currency clampdown. On the banking side, Bandhan is flush with old notes which it can't get exchanged till the systems normalises.

"All the currency chests are full. There is no place to put old notes. This area needs to be smoothened," Ghosh said.

With new Rs 100 and Rs 500 notes entering the system, things are expected to normalise, he added.

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