Business activities gradually improving but it could still be a while before MFI segment sees a turnaround – The Economic Times

Clipped from: https://economictimes.indiatimes.com/industry/banking/finance/banking/business-activities-gradually-improving-but-it-could-still-be-a-while-before-mfi-segment-sees-a-turnaround/articleshow/81635041.cms

Synopsis–With the gradual opening up of the Indian economy, collections picked up pace since the September and December quarter but have slowed in the last couple of months. For entities having significant exposure to urban regions and the poll-bound states of West Bengal and Assam, collections are lower at 80%-90% of pre-Covid levels, while the rates have rebounded to 90%-95% for others.

The microfinance portfolio for Indian banks continues to be a pain point, with collection efficiencies again plateauing around 80% and lenders forecasting at least three quarters of status quo before the gauge heads further north. With nine states including West Bengal and Assam going into elections, politics remains an asset quality overhang for the sector with Rs 2.3 lakh crore of loans to repay.

“This sector needs more hand holding and would take at least six to nine months to recover as the economy gets back full throttle,” said Arvind Kapil, Country Head – Retail Lending, HDFC Bank. “We have stepped up our interaction with the customers, and are closely watching how this segment is behaving in different parts of the country. But I should add that repayments have seen improvement.”

With the gradual opening up of the Indian economy, collections picked up pace since the September and December quarter but have slowed in the last couple of months. For entities having significant exposure to urban regions and the poll-bound states of West Bengal and Assam, collections are lower at 80%-90% of pre-Covid levels, while the rates have rebounded to 90%-95% for others.

According to estimates by India Ratings, at least 10%-15% of the portfolio would be difficult to recover, while 2%-6% of the clients are paying delayed EMIs, either in part or full.

“Business activities at the ground level are gradually improving. Commensurately, monthly repayment has improved too from the December level. However, it may take another three to six months to get back the outstanding loan dues that got accumulated during the moratorium period,” said Chandra Shekhar Ghosh, managing director at Bandhan Bank, the country’s largest micro loan provider.

Bandhan’s collection efficiency in microfinance business was 82% in value terms while that of Assam and West Bengal was lower than the national average. The bank’s outstanding micro loan asset was Rs 53,000 crore in December, contributing two-thirds to its gross loan portfolio.

For Suryoday Small Finance Bank, collection efficiency in the MFI book was at 82% at the end of December. The bank took significant provisions in its MFI book after its proforma gross NPA climbed more than 9%, largely due to payment failures in this segment.

“We are closely monitoring the situation, but in my mind the customer requires a little more handholding, which is why we started an OD facility of Rs 5000,” said Baskar Babu, Founder CEO of Suryoday SFB. “Our collections have been sub-par in Maharashtra but customers just want more time and will start to pay back.”

The bank created a total corpus of Rs 300 crore as overdraft facility out of which Rs 100 crore has been utilised.

Uncertainty could potentially remain high in the near term with respect to any sharp surge in virus cases that could lead to travel and movement restrictions thereby impacting trade and commerce, Goldman Sachs said in a report on Bandhan Bank.

That about 90-95% of borrowers at the bottom of the pyramid have paying back loans however provides comfort that the dues would be paid fully despite delays.

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