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Microfinance delinquencies nearly double to over Rs 28,000 crore in a year

Posted 14 Jan 2025

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India's Microfinance Sector: Rising Delinquencies and Challenges

India's microfinance sector is witnessing a significant rise in delinquencies, especially in the top ten states, despite a decline in non-performing assets (NPAs) across the banking sector.

Key Statistics

Microfinance loans to low-income groups have seen a drastic increase in portfolio at risk (PAR), with loans overdue by 31-180 days doubling to Rs 28,154 crore by September 2024 from Rs 14,617 crore a year ago.
The delinquencies in the 31-180 days overdue category represent 6.8% of the total portfolio of Rs 4.14 lakh crore as of September 2024, compared to 3.8% of Rs 3.84 lakh crore in September 2023.
Incremental rise in the 31-180 days PAR category was Rs 8,117 crore for the quarter ended September 2024, with a total rise of Rs 13,468 crore over a year.

Factors Contributing to Delinquencies

Over-leveraged Borrowers: Borrowers taking on excessive debt, leading to repayment issues.
Debt-Waiver Campaigns: Political interventions disrupting the repayment cycle.
Field-Staff Attrition: Frequent changes in field staff affecting loan disbursal and collection quality.
External Factors: Elections and extreme weather conditions hindering loan recovery efforts.

Geographical Impact

Bihar, Uttar Pradesh, Tamil Nadu, and Odisha accounted for 62% of the incremental delinquency, with Bihar alone reporting a Rs 1,715 crore rise for the quarter ended September 2024.

Regulatory and Economic Challenges

The Reserve Bank of India has set a common household loan limit of Rs 300,000 for microfinance qualification.
India Ratings and Research (Ind-Ra) has revised the outlook on the microfinance sector to deteriorating due to borrower overleveraging, reduced centre attendance, branch level attrition, and frauds.

Future Outlook

While the sector faces asset quality challenges and lender covenant breaches, adequate capitalization and liquidity buffers are expected to help absorb current downturns. However, tighter funding and regulatory actions may impact the sector's growth in the medium term.

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NPA Microfinance Institution (MFI)