nbfc: Sticky micro-loans at Rs 32,000 crore, but profitability of NBFC-MFIs could improve

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The size of the extremely sticky microfinance loans, which remained unpaid even after 90 days of their due dates, stood at almost Rs 32,000 crore, or about 11% of the gross sector loan portfolio of Rs 2.87 lakh crore at the end of March, data released by CRIF High Mark showed.

This, combined with soaring inflation and rising borrowing costs after April, which again slowed the collection of repayments, kept lenders at the bottom of the customer pyramid on a tricky window. Most NBFC-MFIs raised their lending rates by 150 to 250 basis points after the Reserve Bank of India’s decision to deregulate the lending rate from April. Inflation, measured by the consumer price index, has remained above 7% for three consecutive months.

Despite high loan rigidity, the flexibility to set loan rates will help boost the profitability of NBFC-MFIs,

Notes said last week.

“A number of NBFC MFIs have increased their lending rates by 150 to 250 basis points. This provides reasonable leeway to absorb higher borrowing costs. Lenders can also tap into their contingency reserve created over the past two years to manage asset quality issues, without materially impacting profitability,” said Krishnan Sitaraman, Senior Director at Crisil Ratings.

The high level of sticky loans, however, reduced the chances of further write-offs by lenders in the future. Write-offs rose to 4.8% at the end of March, from 4.4% of the total portfolio three months earlier, according to CRIF data, released on Wednesday.

In a recent interview with ET,

Managing Director Ittira Davis said microfinance lenders are operating with an unsustainable level of portfolio at risk and soaring inflation would delay its recovery.

Bandhan Bank, for which microfinance loans make up almost half of its total portfolio, saw its collection efficiency drop to 91% at the end of June from 99% three months ago.

According to the latest CRIF High Mark report, the share of the portfolio that has been past due for 91 to 180 days was 2.7%, down from 3.7% three months ago. Tamil Nadu, West Bengal, Maharashtra, Madhya Pradesh, Odisha and Kerala have stickier wallets for more than 90-180 days than the industry average, while Bihar, Karnataka and Uttar Pradesh have a ratio below 2%.

However, the share of portfolio at risk for more than 90 days has decreased compared to three months ago due to the expansion of the portfolio. The improvement in the collection of refunds was noticed mainly in the lower delinquency brackets.

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