MFIs bleed in December quarter as provisions, write-offs balloon

The provisions and write-offs of these MFIs jumped to Rs 2,357 crore in Q3fy25 from Rs 378.1 crore a year ago

Five listed microfinance institutions (MFIs), as a group, were in the red with a loss of ₹1,241 crore in the third quarter ended December 2024 (Q3FY25) on ballooning provisions and write-offs for stressed assets.

 

These five non-banking financial companies (NBFCs) working as MFIs had posted a net profit of ₹844.8 crore in the same quarter a year ago (Q3FY24).

 

They had posted a net loss of ₹229 crore in the second quarter ended September 2024 (Q2FY25), according to analysis based on Capitaline data.

 

The provisions and write-offs of these MFIs jumped to ₹2,357 crore in Q3FY25 from ₹378.1 crore a year ago.

 

Sequentially, they rose by 22.6 per cent from ₹1,923.3 crore in the quarter ended September 2024.

 

Three prominent players — Spandana Sphoorty, CreditAccess Gramin and Fusion Finance — accounted for close to ₹2,000 crore of provisions and write-offs in Q3FY25, Capitaline data showed.

 

The sharp rise in flow of stressed loans has pushed provisions.

 

Some players have made accelerated provisions for loans where payments are delayed but they are yet to become non-performing assets. This was being done to clean up the balance sheet.

 

The gross non-performing assets (gross NPAs) of CreditAccess were up 3.99 per cent in December 2024 from 0.97 per cent in December 2023 and 2.44 per cent in September 2024.

 

Hyderabad-based Spandana Spoorthy saw gross NPA at 4.85 per cent in December 2024 from 1.61 per cent in December 2023. The bad loans were 4.86 per cent in September 2024.

 

Fusion Finance Ltd’s gross bad loans jumped to 12.6 per cent from 3 per cent a year ago and 9.4 per cent in September 2023.   

A M Karthik, senior vice-president & company group head, financial sector ratings, ICRA, said the flow into the overdue bucket was at its peak in Q3. The intensity of flows into the overdue bucket is expected to be lower in Q4FY25.

 

The movement from the regular bucket to the overdue bucket slowed in January and things continue to be encouraging even in February, he added.

 

The operating income grew by 2.5 per cent year-on-year (Y-o-Y) to ₹3,773.2 crore in the reporting quarter.

 

Sequentially, operating income shrunk by 9.1 per cent from ₹4,150.1 crore in the quarter ended September 2024. 

 

Other income, covering fees and commissions, declined 43.5 per cent Y-o-Y to ₹32.3 crore and 5.6 per cent sequentially from ₹34.2 crore in Q2FY25.

 

Interest costs were up by 3.7 per cent Y-o-Y to ₹1,422.7 crore in Q3FY25 from ₹1,371 crore in Q3FY24. And sequentially, they declined 3.5 per cent from ₹1,473 crore in Q2FY25.  

 

Capital sufficient for now

 

The NBFCs working as MFIs have enough capital now to absorb pressure from stressed loan portfolios.

 

Spandana had a capital adequacy ratio (CAR) of 36 per cent in December 2024 and it intends to keep a capital of up to ₹750 crore to fund growth.

 

CreditAccess Grameen had a CAR of ₹25.9 per cent. Fusion Finance’s CAR was 22.2 per cent in December 2024 and it is in the midst of raising ₹800 crore through a rights issue.

 

Karthik said the current capital base of MFIs is sufficient to take the pressure out of provisioning because the growth in assets under management (AUM) has also slowed down.

 

The growth in assets is expected to be flat with negative bias for the current financial year (FY25). And, assets may grow at 10-11 per cent in the next financial year (FY26), he said.