UP mega loan waiver to boost microfinance space

Borrowers' clean credit history to spur lending

The crop loan waiver announced by the Yogi Adityanath government in Uttar Pradesh is likely to stoke the microfinance sector as well and result in higher lending. 

The Yogi cabinet had on April 4 announced to waive crop loan of Rs 30,729 crore, while an additional Rs 5,630 crore was announced to be written off in non-performing assets (NPA) accumulated by commercial and cooperative banks in the agricultural sector. 

The total waiver had amounted to Rs 36,359 crore and it was projected to benefit roughly 8.6 million farmers, while another 7,00,000 farmers benefited from the NPA write-off, making them available to seek fresh loans from lending institutions. 

“Since the write-offs would also clean up the credit history of such a large segment of borrowers, it would definitely translate into growth in the lending by the microfinance institutions, both directly and indirectly,” leading state microfinance player Sonata Finance Private Limited managing director Anup Kumar Singh told Business Standard here. 

He projected the state microfinance space to grow by 40% in the current fiscal and touch almost Rs 12,000 crore in 2017-18. 

Last year, UP microfinance advances were to the tune of Rs 8,000 crore, although lending had taken a hit following demonetisation, which was announced on November 8 and caused severe cash crunch in the domestic economy as it had squeezed the high value currency notes from the market. The current microfinance outstanding in UP is projected at Rs 6,000 crore. 

Sonata had clocked lending of over Rs 1,000 last year, Singh informed adding the microfinance space would now reap the positive aftereffects of demonetisation. 

Sonata was one of the four UP-based financial institutions shortlisted by the Reserve Bank of India (RBI) in 2015 to set up small finance bank. In all, RBI had on February 6 released a list of 72 companies, which had earlier applied for small finance bank license to enable them serve the unbanked and remote areas. 

However, Sonata failed to make it to the final list and only one microfinance institution from UP viz. Varanasi-based Utkarsh Micro Finance was given the license to set up bank. 

Currently, Sonata has about 360 branches across India, of which more than half operate in UP. There are over a dozen microfinance institutions operating in UP, he informed. 

Meanwhile, Sonata has collaborated with payments solutions provider Oxigen Services, Grameen Foundation India and Citi Foundation to scale up digital financial services in the state. The objective is to deliver integrated digital banking services and education to Sonata’s female borrowers, Oxigen group president Rajpal Duggal said. 

Oxigen, India’s largest payment solutions provider, would enable Sonata with micro-ATM based services for its rural clients spread across UP. Sonata has a customer base of nearly 0.8 million. It would enable biometric and Aadhar enabled payment system (AEPS) at Sonata branches. The customers could also withdraw or deposit cash with the help of these handheld machines