Microfinance industry to recover from note ban blow in 6 months

The microfinance industry, which was affected adversely after demonetisation, will take another six months to fully recover from the blow, industry experts said on Thursday.

As an effect of the Central government's 2016 move scrapping Rs 500 and Rs 1,000 banknotes, the industry saw collection rates falling substantially resulting in the rise of non-performing assets (NPA).

According to them, the industry probably is in the last leg of demonetisation-induced pain.

"Post-February 2017, industry's collection rate improved to over 90 per cent (as against 98-99 per cent in the pre demonetisation period).

"Within a span of next six months things should be back on track," MFIN (Microfinance Institutions Network) Former CEO Ratna Vishwanathan said on the sidelines of a summit organised by Association of Microfinance Institutions - West Bengal (AMFI-WB) here on Thursday.

According to her, NPAs have come down from 23 per cent in the period following demonetisation to four per cent at present, within a span of one year and this is expected to come down further to two per cent moving forward.

Repayment of microfinance loans came to a halt post the demonetisation announcement. The problem was further aggravated following farm loan waiver announcement, which affected the repayment culture of borrowers.

The industry, which includes banks, NBFC (non banking finance companies)-MFIs, NBFCs and other MFIs, has a total loan portfolio of over Rs one lakh crore.

MFIN had estimated write-offs (against delinquent accounts) by NBFC-MFIs to be to the tune of Rs 5,000 crore.

A majority of the delinquent accounts came from Karnataka, Madhya Pradesh, Uttar Pradesh, Uttarakhand and Maharashtra.

However, collection has improved in Uttar Pradesh and Madhya Pradesh, she said.

Bandhan Bank's MD and CEO Chandra Sekher Ghosh also said the problem has been gradually tapering off. Ujjivan Small Finance Bank had to write off loans worth Rs 300 crore.

City-based microfinance institution Village Financial Services (VFS) had also suffered from problems of demonetisation.

"Though we did not have to make any write offs, recoveries are happening slowly," VFS Managing Director Kuldip Maity said.

--IANS

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