MFI sector improves after 2nd wave, caution needed on asset quality: Report

After the setbacks during the second wave of the pandemic, the microfinance industry showed an improvement in disbursements, asset quality and new loan inquiries in the September quarter, a report said on Tuesday.

The portfolio outstanding for the industry, which typically provides small ticket loans to micro entrepreneurs and women borrowers, increased to Rs 2.49 trillion as of September, up 2.1 per cent when compared with the figure in June and 6 per cent when compared with the year-ago period, it said.

Unpaid loans, which had become a concern because of the economic activity getting affected during the second wave in the April-June period, also seem to be reducing if one were to go by the 30-day overdue period, the report by CRIF Highmark, a credit information company, said.

The 30-plus days overdue loans declined to 10.4 per cent in September from June's 15 per cent, while those unpaid for over 90 days remained stable at 3.3 per cent, it said.

However, when compared to the year-ago period, the proportion of loans which were overdue in both the buckets were higher, it said.

The volume of inquiries witnessed a good recovery during the quarter as compared to the first quarter of the fiscal, it said.

"While the effects continue to linger, the second quarter marked a turnaround for the microfinance industry with an increase in disbursements.

However, lenders still need to be cautious about asset quality," the report cautioned.

The report said 4.1 per cent of borrowers have exposure to four or more lenders, with the proportion of such borrowers being the highest in Tamil Nadu and least in Assam.

When it comes to growth, disbursements in the rural markets grew at a faster clip as compared to the urban ones, it said, adding the top-10 states constitute for 83 per cent of the gross loan portfolio as of September 2021.

Tamil Nadu is top among states, while Assam and West Bengal witnessed a decline in the overall loan portfolio, the report said.

Banks' share in the overall microlending mix is over 40 per cent despite a faster paced pick up in the non-bank lenders, who now account for a 29 per cent market share and are followed by the small finance banks at 17 per cent.

From a risk perspective, Darbhanga, Nanded and Sitamarhi were the best performing districts while Jalpaiguri, Koch Bihar and Kollam were the worst ones, it said.