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Despite bright spots, uncertainty looms over microfinance business

The southern peninsula and north-western states have so far fared better on microfinance repayments even as pan-India delinquency ratios deteriorated sharply.

Near-term business prospects across states are, however, more clouded with the outburst of Covid-19 cases over the past couple of weeks. Industry leaders, especially those with small and medium sized NBFC-MFIs, are anticipating a liquidity crunch in the event of fresh lockdowns.

Eight states, including Maharashtra and West Bengal, are already facing higher default risks.

Tamil Nadu has 2.36% delinquency for the 90-day-plus period, the lowest among top five states by way of loan outstanding. West Bengal has the highest – at 8.97% – as of December 31, a joint report by Equifax Credit Information Services and Small Industries Development


The report captured the period up to last year. The repayment situation worsened further in the next two months due to slower economic recovery in some states and disruptions in anticipation of loan waiver in a few others, industry insiders said.

Rating company

said the credit costs of microfinance lenders could rise significantly to 6-7% since overdue amounts are higher than pre-covid levels.

Rajasthan, Haryana, Himachal Pradesh, Sikkim, Manipur and Mizoram have over 90-day past due delinquency below 2.5%, while Karnataka, Kerala, Uttar Pradesh and Bihar have the ratio between 2.5% and 3.5%. Punjab, Chhattisgarh, Odisha, Assam, Meghalaya and Tripura have the ratio over 4.5%.

ET has studied the report, which put the average pan India delinquency for the same bucket at 4.96% as of December; it worsened from 0.63% three months back. The portfolio at risk for over 90 days deteriorated to 5.35% at the end of February, data from microfinance industry association Sa-Dhan showed.

Delinquency for 1-29-days past dues has been the highest at 7.5% at the end of December. It has declined to half as compared to September 2020, which may be due to shifting of delinquent accounts to the next past due bucket.

Top five states in terms of loan outstanding are West Bengal, Tamil Nadu, Bihar, Karnataka and Maharashtra, contributing 55% to the pan-India microfinance portfolio of Rs 228,818 crore at the end of last year. West Bengal contributed 15% with Maharashtra contributing 7% to the total micro loan portfolio.

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