Huge spike in loan defaults after demonetisation, says Equitas Holdings

The company may have to make further provisioning this fiscal also, on the growing delinquencies

Delinquencies in the microfinance business of Equitas Holdings Ltd have risen by almost five percentage points post demonetisation, the company's management said on Friday. The company may have to make further provisioning during the current fiscal related to the increase in delinquencies.

"Delinquency in microfinance used to be under one per cent consistently for many years, but in the last few months it has moved substantially up and today it is just under six per cent ," P N Vasudevan, MD and CEO , Equitas Small Finance Bank Ltd told shareholders at the company's annual general meeting in Chennai. The delinquency level has gone up from 0.6 per cent in October 2016 to 5.9 per cent in March 2017.

The collection efficiency also came down from 99.5 per cent, to 94 per cent, he added. The impact is from Maharashtra, Madhya Pradesh and Karnataka.

N Rangachary, Chairman of the company during the AGM today, said that the impact was not only on Equitas, but also on other companies in the microfinance companies. While the farm loan waivers could be a relief for them in some of these states, it is not clear whether it would help improve the situation for the industry as of now.

In the annual report for the year 2016-17, he told shareholders, "This trend is worrisome as the nature of this risk makes it difficult to fathom at this stage the long-term impact it could have on customers' repayment culture and credit discipline. This uncertainty makes risk mitigation extremely difficult."

The company had to make unexpected provisioning of around Rs 42 crore last fiscal year due to the increase in delinquencies and the company expects some more provisions to hit it during this year due to the growing delinquencies.

"We are working to build other products so that the dependence on microfinance comes down over a period of time," said Vasudevan.

As the company steps into the second decade of its service, the year ahead is expected to be the most challenging year yet in the history of the Company, said Rangachary in the Annual Report. On the one hand, it needs to focus on accelerating contribution from new loan products to offset the slowdown in microfinance, while retaining strong control over quality of portfolio; and on the other, to create and strengthen the liability franchise of the bank.

Microfinance advances as at March 31, 2017 stood at Rs 3,293 crore, with demonetisation affecting disbursements during November and December 2016, it added. The company merged its microfinance entity and housing finance entity with Equitas Finance Ltd, last year.