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Acute stress building up in microfinance portfolios in WB, Maha, Punjab

Acute stress is building up in microfinance portfolios in states like West Bengal, Maharashtra and Punjab, besides Assam, forcing the ministry of finance to go for an on-the-ground reality check.

The department of financial services (DFS) has recently called upon the two microfinance industry organisations – Sa-Dhan and Microfinance Institutions Network (MFIN) – to assess the situation in the eastern region states.

With the second wave of coronavirus spreading like wildfire, the risk of the situation turning worse has become manifold.

The portfolio at risk for over 90 days (PAR>90) – a yardstick to measure delinquency risk — was 12.6% in Assam at the end of February, while it was 10.5% for West Bengal, sharply higher than the national average of 5.35%. The ratio was 7.8% for Maharashtra, 6.25% for Punjab and 7.12% for Delhi.

“Incomes of micro-loan borrowers have not recovered to the pre-covid level in some of the states. This remains a cause for concern,” Sa-Dhan executive director P Satish said. “The portfolio at risk is higher than the national average in states like Assam and West Bengal.”

The industry level PAR for over 90 days was lower at 4.98% at the end December 2020. Portfolio at risk over 30 days was 13.23% in the same period, data from Sa-Dhan showed.

The DFS wanted MFIN and Sa-Dhan to submit details on delinquency, portfolio size, penetration levels and repayment collection efficiency.

Microfinance portfolios in Gujarat, Rajasthan, Uttar Pradesh and southern states are performing fairly well if one goes by the credit bureau report, said MFIN chairperson Manoj Nambiar. “But stress is more visible in some states,” he said.

Assam has been a black swan since late 2019 with indebtedness of a sizable chunk of micro borrowers crossing the Reserve Bank of India yardstick. Micro borrowers in West Bengal too are over leveraged, the chief executive of a NBFC-MFI said.

West Bengal has the highest microfinance loan outstanding at Rs 34,853 crore at the end of December 2020, followed by Tamil Nadu’s Rs 31,520 crore and Bihar’s Rs 25,247 crore, according to MFIN data. West Bengal also has the highest average loan per unique borrower at Rs 55,585 followed by Assam at Rs 48,578. Assam is the ninth largest state in terms of microfinance business with Rs 12,394 crore outstanding.

By the portfolio at risk yardstick, banks with 42% microfinance pie are more in stress. PAR over 90 days for them was 5.92% on an average. As many as 14 banks hold the largest share of micro-credit portfolio with Rs 97,956 crore loan outstanding. Bandhan Bank is the largest microfinance player with Rs 53,000 crore loan outstanding at the end of December 2020, accounting for 60% of its lending business.

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