Chances of recovery seem slim for Rs 20,000 crore in micro-loans

Microfinance lenders, including banks and smaller finance banks, could struggle to recover around Rs 20,000 crore, which will be nearly 270 days late (DPD) by the end of December.

This represents about 8% of the gross loan portfolio of the microfinance sector.

A significant portion of that will likely be written off by cautious lenders as part of the balance sheet cleanup exercise, people familiar with the matter said.

DPD is a financial concept that shows how many days a loan remains unpaid after the due date. The risk of non-recovery increases when the DPD is extended.

“Some 5% of borrowers whose businesses depended on the tourism and education sector have not yet returned to normal. This group of borrowers find it extremely difficult to repay their contributions, ”said a senior executive at a large microfinance firm.

Traders and traders in pilgrimage sites and tourist destinations as well as school bus and carpooling operators are likely to further delay their payments due to the slow lifting of restrictions in the sectors in which they are involved.

The spread of the Omicron variant of Covid-19 could add to their woes if tighter travel restrictions return.

Credit bureau CRIF High Mark Credit Information Services said portfolios at risk beyond 180 DPD continued to rise and reached 8% of total sector loans of Rs 2.49 lakh crore by the end of September. States like Assam, Maharashtra and West Bengal had seen PAR (TO SPELL US THIS) over 180 days at 24%, 14% and 12% respectively.

“This is a delicate portfolio that could potentially be written off,” said the managing director of a small financial bank.

The CRIF report showed that at the end of September 23% of loans remained unpaid after 30 days due and 11.3% of loans remained unpaid after 90 days Some microfinance lenders cancel loans after 180 days, some do so after 270 days, as they rely more on the model and repayment possibilities, people familiar with the matter said.

The write-off does not mean that the loan is canceled. Lenders sue their borrowers to collect their loans even after they have written them off the balance sheet. Lenders hope that around 15-20% of these lingering loans can be clawed back over the next two years, as microfinance borrowers typically don’t want to exit the system.

Captains of the industry expect collection efficiency to improve to the pre-Covid level of 98-99% in the next three to six months from the 93-95% observed in September. Canceling outstanding loans would help paint a better picture of the recovery. In addition, the collection of repayments improved each month with borrowers who saw an improvement in their cash flow.

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