Bad loans for self-help groups at alarming levels: Nabard

Number of self help groups linked to banks has also shown a decline

The number of self-help groups (SHGs) linked to banks has, for the first time, recorded a decline. And, non-performing assets (NPAs) in the SHG-bank linkage programme touched an ‘alarming’ level of seven per cent, according to a National Bank for Agriculture and Rural Development (Nabard)’s report on microfinance for 2012-13.

The SHG-bank linkage programme was started in 1989; it had resulted from a Nabard initiative in 1987.

Now, after a decade of unprecedented growth, the SHG sector is facing various challenges. The reasons for this, Nabard says, are aggressive targets, little attention to asset quality and the government’s policy of projecting SHGs as a tool for poverty alleviation.

“More painful is the fact that loans to SHGs in the most resource-poor regions in the country reported NPAs of over 10 per cent. Further, as indicated, this potent and effective financial inclusion measure has not received the attention with bankers currently focused on opening individual accounts through banking facilitators/banking correspondents,” the report said.

As was the case with microfinance institutions (MFIs) a few years ago, multiple borrowings in select cases were observed in the case of SHGs, Nabard said.

Overall NPAs in the case of loans to SHGs rose 26 per cent to Rs 2,787 crore in March 2013, against Rs 2,213 crore a year earlier. In percentage terms, gross NPAs increased from 6.09 per cent last year to 7.08 per cent this year. “The financing banks were ill-prepared for the sudden spurt in SHG loans and their monitoring and supervision of such loans became less regular (and even totally absent at times!),” Nabard said.

The Nabard report also pointed to the high NPAs in the MFI sector. “It appears the MFI sector in general has not been insulated from the general trends in NPA expansion in banks’ portfolios. A comparison of the NPA figures in respect of SHG-bank linkage programme and MFIs suggests both the segments of microfinance have seen a rise in NPAs,” the report said.

However, Micro Finance Institutions Network (MFIN), a representative body of MFIs, has said NPAs in the MFI sector have declined. “NPAs in the MFI sector have come down significantly,” said Samit Ghosh, president of MFIN.

“According to our data, NPAs are strictly under control. In the SHG sector, the NPA situation is clearly alarming, which shows the model itself is flawed,” said Alok Prasad, chief executive, MFIN.

In absolute terms, both the segments —SHGs and MFIs — recorded a rise of about Rs 3,000 crore in dues last financial year. NPAs, with regard to bank loans to MFIs, rose by Rs 630 crore, while those in the SHG-bank linked programme increased by Rs 575 crore.