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Microfin in Major Crisis with Near-2x NPA Surge

2 min read

India's Microfinance Crisis

The microfinance sector in India is undergoing a significant crisis, marked by a sharp increase in delinquency rates and non-performing assets (NPAs).

Key Statistics and Trends

  • The gross non-performing asset (NPA) ratio has risen to 16% at the end of FY25 from 8.8% the previous year.
  • In absolute terms, NPAs have increased to ₹61,000 crore by March-end, up from ₹38,000 crore a year ago.
  • The sector's cumulative gross loan portfolio has contracted by about 7% due to increasing loan losses.

Sectoral Impact

  • Small finance banks reported a 22% sticky loan ratio out of their ₹59,817 crore microfinance loans.
  • Universal banks had a 17.5% bad loan ratio on their ₹1.24 lakh crore microfinance exposure.
  • The bad loan ratio for NBFC-MFIs was 12.3%, and for other NBFCs, it was 12.8%.

Regulatory and Market Challenges

The regulation of microfinance operations in Tamil Nadu is likely to increase delinquency rates, as was observed in Karnataka following similar legislation.

  • The Tamil Nadu Ordinance could worsen market challenges, as seen in Karnataka where the market took two months to stabilize post-regulation.

Impact on Investors

  • Investors have suffered significant losses, with companies like Fusion Finance and Spandana Sphoorty Financial experiencing a 66-68% decline in share prices.
  • CreditAccess Grameen saw a 23% drop in market value.
  • IDFC Bank faced an 18% price decline due to stress in its unsecured portfolio.

Microfinance Loan Dynamics

  • Microfinance institutions provide collateral-free loans to low-income households, particularly benefiting women.
  • These institutions form joint liability groups (JLG) of women, which serve as intangible collateral for unsecured lending.
  • Tags :
  • NPA
  • Microfinance
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