Nabard raises concern over rising NPA in SHG lending

Number of SHG borrowers on decline

The number of self help groups obtaining loan from the banking system has been coming down over the years, an indication of the weakening SHG movement in India. Increasing bad loans from SHG portfolios are keeping commercial banks at bay from SHGs.

National Bank for Agriculture and Rural Development (Nabard) has already raised alarm over  rising NPA in SHG lending in its recent report called, Status of Microfinance in India, 2011-12.

The number of SHG borrowers declined by around 4%, from 1,196,000 to 1,148,000 between March 2011 and March 2011,according to the Nabard report. Also, in percentage terms the gross non performing assets from SHGs increased from 4.72% as on March 2011 to 6.09% as on March 2012.

However, the quantum of fresh loans issued to SHGs by banks rose 13.70% in   to Rs 16,535 crore in 2011-12, against Rs 14,548 crore  in the previous year. 

The report points out towards a cautious attitude of commercial banks to towards SHGs. While commercial banks accounted for 63% of the savings of the SHGs, their share in fresh lending against total lending to SHGs was just 60%. In contrast, while regional rural banks had a savings share of just 20% from SHGs, their share of fresh lending to them was close to 30%.

“What causes more concern is the fact that the number has been declining over the last three years, though the rate of decline has come down nearly from 24% to 4% this year,” the report said.
Moreover, the number of SHGs having loans outstanding against them against banks declined by 9% during the year to Rs 43.54 lakh, against 47.87 lakh in the previous year.

All states, baring, Karnataka, Punducherry and Himachal Pradesh recorded a decline in the number of SHGs.

In absolute terms, the gross NPA against loans to SHGs increased from Rs 1474 crore at the end of March 2011 to Rs 2213 crore in March 2012.
The gross NPA against loans to SHGs stood at Rs 2212 crore in March 2012, against a total outstanding of Rs 36340 crore.

“This is a matter of concern for the microfinance sector and the causes for declining recovery rate needs to be analyzed and remedial action initiated urgently,” the report said.

The report also says that the fact that the commercial banks are loosing interest in lending to MFIs is certain from the fact that the amount of fresh lending in the last one year declined by 38%.