Microfinance sector shrinks by 4% in Apr-Dec 2020

Microfinance sector shrinks by 4% in Apr-Dec 2020

KOLKATA: The microfinance sector shrunk 4% in the nine months to December 2020, with the average loan size falling by 10% as lenders turned cautious amid the pandemic that derailed the robust repayment system on which the sector banks on.

Combined micro credit portfolio of all lenders stood at Rs 2,27,893 crore at the end of 2020 compared with Rs 2,36,427 crore as of March 31, 2020. Average ticket size fell to Rs 33,227 against Rs 3,6842 over the same period, according to data shared by Sa-Dhan, an industry body.

The repayment efficiency ratio, while improved to 85-95% at the end of December from just about 55-60% seen in July, is yet to reach pre-Covid level of 97-99%. Portfolio at risk for 30 days has deteriorated to 13.23% from 1.78% in March 2020.

Lenders wrote-off 1.6% of their loans at the end of December 2020 with Uttarakhand witnessing the highest ratio of written-off loans at 7.3% followed Maharashtra at 3.8%, Gujarat at 3.5%, Madhya Pradesh at 3.2% and Delhi at 3%.

Collections took a major hit in Assam and pockets of other states like Maharashtra and Karnataka where political activism and calls for loan waivers destabilised the business environment, people tracking the sector said.

Sa-Dhan’s quarterly report said that loan disbursements are falling short of demand due to asset quality concerns while smaller and medium-sized microfinance firms are also struggling to disburse loans because of fund crunch.

“The microfinance sector is facing challenges in accessing funds from banks,” said P Satish, executive director at Sa-Dhan. “The situation is most difficult for small MFIs. We expect the situation to improve in coming months with various initiatives of the Reserve Bank of India and the government.”

Industry leaders are expecting the monthly repayment rate to improve to 97% by March, although repayment of the past dues may take longer. Bandhan Bank, with two-third of its advances in the microfinance sector, said its proforma non-performing assets ratio is 7.12% while

‘s proforma NPA was 4.8% at the end of December.

Proforma NPA reflects what could have been the situation had the Supreme Court not stayed NPA recognition since August 31, 2020 to provide relief to borrowers during the pandemic.

Banks enjoy the highest market share in microfinance at 42% with Rs 96,683 crore, while NBFC-MFIs have 32% market share with loan exposure of Rs 72,242 crore. Small finance banks have 17% share with Rs 38,109 crore, NBFCs have 8% with Rs 18,988 crore and not-for-profit MFIs have 1% share with Rs 1,871 crore.

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