Microfinance Loan Portfolio Contracts as Lenders Tighten Disbursements

ENA Sectors 2025-01-13 14:22:53 New Delhi, Jan 13 (KNN) The microfinance sector in India has witnessed a contraction, with the outstanding gross microfinance loan portfolio shrinking to Rs 3.93 lakh crore at the end of November 2024. This marks a decline from the peak of Rs 4.43 lakh crore recorded in March 2024. Lenders have adopted a cautious stance, reducing the pace of loan disbursal, with some even halting the acquisition of new-to-credit customers. The slowdown is attributed to mounting asset quality stress and faltering collection efficiencies. Industry experts remain optimistic about a recovery, but most agree that it may take a couple of quarters for the sector to regain its footing. According to heads of microfinance lenders, the sector is currently in a healing phase, with measures in place to prevent further deterioration. Despite the challenges, microfinance continues to play a vital role in Indias economy, contributing 2.03 per cent to the GDP and supporting 13 million jobs. A number of smaller finance banks have reported a quarter-on-quarter decline in their microfinance portfolios. For instance, Ujjivans gross group microloans fell by 8.3 per cent, while Utkarsh and Equitas saw declines of 8.4 per cent and 4.7 per cent, respectively. These reductions point to the sectors struggle to maintain growth amidst the ongoing challenges. Bigger private banks, too, have become more cautious about their microfinance exposure. Many have raised the risk weightage on such loans to 125 per cent from 75 per cent, reflecting growing concerns over asset quality. India Ratings and Research downgraded the sectors outlook from neutral to deteriorating, warning that loan growth will be subdued unless collection efficiencies improve. Meanwhile, collection efficiencies have also shown signs of strain. Bandhan Bank reported a dip in its efficiency for the December quarter, from 98.1 per cent to 97.4 per cent, while Suryoday Small Finance Banks ratio dropped from 98.4 per cent to 94.8 per cent. In response, lenders like Spandana Sphoorty Financial and Satin Creditcare Network have paused onboarding new customers to safeguard portfolio health. Experts, however, suggest that the near-term challenges are likely to persist, with a more significant recovery expected only by the second half of FY26. (KNN Bureau) 40624 https://knnindia.co.in/news/newsdetails/sectors/microfinance-loan-portfolio-contracts-as-lenders-tighten-disbursements 2025-01-13 14:22:53 knnindia.co.in Microfinance Loan Portfolio Contracts as Lenders Tighten Disbursements