As the six-month moratorium on EMI payments came to an end in August last year, early delinquencies (30 days late) in microloans rose sharply to 15.7 per cent in September, according to CRIF High Mark, an RBI-approved credit bureau. This was an increase from 2.35 per cent at March-end, and 1.3 per cent at the end of September 2019.
Businesses began to recover after the government relaxed lockdown guidelines in a graded way. Yet, microfinance borrowers, who were impacted severely by the lockdown, were not able to repay their dues, leading to phenomenally high early delinquencies.
West Bengal, which retained its position as the top microfinance market as of September, had an early delinquency rate of 31.7 per cent.
The trend was visible across lenders, with banks witnessing levels as high as 24 per cent in urban areas. Non-banking finance companies, microfinance institutions and small finance banks have seen slightly higher incidence of early delinquencies in rural areas compared to urban.
The lockdown decision affected the microfinance sector severely, with gross loan portfolio (GLP) shrinking 1.5 per cent sequentially to Rs 22,400 crore in September over Rs 22,660 crore in June. However, compared to the previous year, GLP grew 14 per cent.
With near-nil economic activity in the first quarter of the financial year (Q1FY21), the sector witnessed a huge decline in fresh disbursements, 88 per cent lower compared to same quarter last year. In Q2FY21, as the lockdown was lifted, disbursements went up swiftly, witnessing a 380 per cent spike, in value terms, over Q1.
The microfinance sector is slowly returning to the growth path, with a spike in fresh disbursements. However, since the pandemic is anything but over, repayments and collections remain a concern, more so as the collection mechanism still continues to be physical and reach-based, rather than digital, the bureau said.