Kolkata: Credit delivery to bottom of the pyramid customers has shrunk by nearly a third in the second quarter of the fiscal compared with the year-ago period, with banks slowing down businesses more than non-bank lenders in an overheated microfinance market.
The size of the microfinance market has also declined successively in the past two quarters.
According to the latest sectoral data collated by credit information company Crif High Mark, overall loan disbursement in the second quarter stood at Rs 69,296 crore, 29% lower than what it was in the same period last year.
Quarterly loan disbursement
Banks -- both in mainstream and in the small finance bank category -- squeezed loan delivery to microfinance borrowers by about 35%. The fall in loan disbursement by non-banking finance companies (NBFC) during the quarter was the lowest at 15%, albeit on a lower base.
NBFC-MFIs, the leaders in microfinance with 38% market share, disbursed 24% less during the quarter against the year-ago period.
"The decline in credit growth was a deliberate step. In the past two years, microfinance grew very significantly, clocking 25% or more and in some geographies going beyond 30 to 35%. It has caused an over-supply of credit, leading to some stress as we see today," said Jiji Mammen, executive director at Sa-Dhan, one of the self-regulators for the sector.
Outstanding microfinance portfolio
The outstanding gross loan portfolio has come down to Rs 4.14 lakh crore at the end of September, as compared with Rs 4.33 lakh crore at the end of Juneand Rs 4.43 lakh crore at the end of March.
Banks' outstanding portfolio was squeezed to Rs 1.33 lakh crore from Rs 1.47 lakh crore, while NBFC-MFIs portfolio fell to Rs 1.62 lakh crore from 1.74 lakh crore over the six month period. Small finance banks' outstanding portfolio stood at Rs 69421 crore against Rs 74712 crore. In contrast, NBFCs and other not for profit MFIs saw their outstanding loan rising to Rs 46784 crore from 45236 crore and to Rs 2552 crore from Rs 2338 crore respectively.
"The microfinance sector has been facing headwinds and witnessing elevated risk in portfolio quality... As of now, I would say we will be more careful in containing the portfolio quality rather than focusing too much on growth in
the microfinance portfolio," Bandhan Bank executive director Ratan Kumar Kesh said in post-earnings analyst call.
The sector is facing problems of over-leveraging. Gaps were found on assessment of monthly household income, which has been at the heart of Reserve Bank of India's policy prescription to reduce over-indebtedness of micro borrowers. Sources in the industry said that many a time monthly household income was overstated by field staffers who have typically been under pressure to grow business.
The size of the microfinance market has also declined successively in the past two quarters.
According to the latest sectoral data collated by credit information company Crif High Mark, overall loan disbursement in the second quarter stood at Rs 69,296 crore, 29% lower than what it was in the same period last year.
Quarterly loan disbursement
| Q2 FY25 | Q2FY24 | Fall | |
| Banks | Rs 25154 cr | Rs 38639 cr | 35% |
| SFBs | Rs 9260 cr | Rs 13926 cr | 34% |
| NBFC-MFIs | Rs 26468 cr | Rs 34606 cr | 24% |
| NBFCs | Rs 8081 cr | Rs 9510 cr | 15% |
| Others | Rs 332 cr | Rs 429 cr | 23% |
Banks -- both in mainstream and in the small finance bank category -- squeezed loan delivery to microfinance borrowers by about 35%. The fall in loan disbursement by non-banking finance companies (NBFC) during the quarter was the lowest at 15%, albeit on a lower base.
NBFC-MFIs, the leaders in microfinance with 38% market share, disbursed 24% less during the quarter against the year-ago period.
"The decline in credit growth was a deliberate step. In the past two years, microfinance grew very significantly, clocking 25% or more and in some geographies going beyond 30 to 35%. It has caused an over-supply of credit, leading to some stress as we see today," said Jiji Mammen, executive director at Sa-Dhan, one of the self-regulators for the sector.
Outstanding microfinance portfolio
| Sep-end | March-end | |
| Banks | Rs 132957 cr | Rs 146909 cr |
| SFBs | Rs 69421 cr | Rs 74712 cr |
| NBFC-MFIs | Rs 162324 cr | Rs 173504 cr |
| NBFCs | Rs 46784 cr | Rs 45236 cr |
| Others | Rs 2552 cr | Rs 2338 cr |
Banks' outstanding portfolio was squeezed to Rs 1.33 lakh crore from Rs 1.47 lakh crore, while NBFC-MFIs portfolio fell to Rs 1.62 lakh crore from 1.74 lakh crore over the six month period. Small finance banks' outstanding portfolio stood at Rs 69421 crore against Rs 74712 crore. In contrast, NBFCs and other not for profit MFIs saw their outstanding loan rising to Rs 46784 crore from 45236 crore and to Rs 2552 crore from Rs 2338 crore respectively.
"The microfinance sector has been facing headwinds and witnessing elevated risk in portfolio quality... As of now, I would say we will be more careful in containing the portfolio quality rather than focusing too much on growth in
the microfinance portfolio," Bandhan Bank executive director Ratan Kumar Kesh said in post-earnings analyst call.
The sector is facing problems of over-leveraging. Gaps were found on assessment of monthly household income, which has been at the heart of Reserve Bank of India's policy prescription to reduce over-indebtedness of micro borrowers. Sources in the industry said that many a time monthly household income was overstated by field staffers who have typically been under pressure to grow business.
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