Microfinance Sector Stress and State Bank of India's Role

The microfinance sector is experiencing a cyclical rise in stress, significantly impacting the State Bank of India (SBI). The amount of bad loans in SBI's Rs 10,000 crore portfolio has escalated from Rs 100 crore to Rs 700 crore.

Temporary Challenges and Future Outlook

• SBI expects conditions to improve in the current quarter (Q4Fy25) and the first quarter of the next financial year (Q1Fy26).
• The bank is actively supporting microfinance institutions (MFIs) during this difficult phase.

SBI's Financing Approaches

• Co-lending: Collaborating with MFIs to provide loans.
• Pool Purchase: Acquiring MFI loans through direct assignment.
• Term Credit: Providing credit to firms for on-lending purposes.

Increase in Delinquencies

• As per CRIF-Highmark data, delinquencies across all Days Past Dues (DPD) bands increased in the quarter ending September 2024 (Q2Fy25).
• The 31-180 days DPD levels rose from 2.2% in September 2023 to 4.8%.
• All lender types, including universal banks, small finance banks, and non-banking finance companies acting as MFIs, experienced increased delinquencies.

Future Expectations and Challenges

• Non-bank finance companies (NBFC)-MFIs may continue to face asset quality stress due to tight funding from lenders.
• Normalization of delinquencies is anticipated by the second half of the next financial year (2HFy26), as industry efforts begin to show positive results.

Internal vs. External Factors

• Current stress in the microfinance sector is attributed to internal factors, unlike during the COVID period when external factors were responsible.
• Improving governance, risk management, corporate governance, and compliance are crucial for addressing these internal challenges.

UPI Expansion and Future Prospects

To bring an additional 200-300 million users onto the Unified Payments Interface (UPI) platform, substantial support is required from the Reserve Bank of India (RBI), government, and the financial ecosystem.

Current State of UPI

• Approximately 450 million users are engaged with the UPI, with 200 million being daily active users.
• The UPI currently handles nearly 17 billion transactions.

Potential for Growth

• The UPI platform has the potential to grow by 10 times its current base.
• NPCI has extended the compliance deadline for UPI providers regarding the 30% market share cap until December 31, 2026.

Factors Influencing UPI Growth

• Growth is driven by the ecosystem's diversity and the entry of new fintech players.
• Cybersecurity is emphasized as a crucial area, with a directive for fintech startups to prioritize it.

RuPay Credit Cards

• RuPay is highlighted as one of the largest domestic card networks with international acceptance.
• Currently, RuPay accounts for about 16-17% of the total credit spending in India.