Rise in long term delinquencies show persistent repayment challenges in microfinance

Kolkata: Microfinance delinquencies in the early stage have moderated while those for the long term rose further, highlighting persistent industry-wide repayment challenges, credit bureau CRIF High Mark said after analysing the sectoral data.

The credit bureau said that early delinquency, measured by portfolio at risk until 30 days past due (PAR 1-30) peaked to 2.1% at the end of September last year before improving to 1.4% by March, indicating a recent recovery in loan performance.

However, longer-term delinquencies, particularly PAR 180+ continued to rise, highlighting persistent industry-wide repayment challenges and delinquency trends.

PAR 91-180 rose to 3.4% at the end of March from 3.2% three months back while PAR 180+ rose to 5.1% from 3.7% for the same period. The PAR 180+ data is however only for loans disbursed in the last 24 months. This print also includes written off loans. The PAR 180+ print would be double of this if taken all past data beyond the last 24 months, people familiar with the matter said.

Loans are classified as non-performing when they remain unpaid for more than 90 days.

The PAR for 91-180 days past due and over 180 days past due (including write-offs) continue to rise, particularly for banks and small finance banks, followed by NBFC-MFIs, highlighting persistent challenges, CRIF High Mark said in its report on March-end data.

Microfinance is a model of giving collateral-free loans to low-income households with annual income of less than Rs 3 lakh. Women are the primary beneficiaries of such loans.

The microfinance market in Karnataka, which enacted a law to control the unregulated entities in February, saw stress levels soared with the sharpest jump in gross non-performing assets in the fourth quarter among all large states. Its portfolio at risk for 91-180 days past due bucket rose to 10.2% at the end of March from 4.5% three months prior to that.

As Tamil Nadu is also in the process to regulate microfinance operations, the state's delinquency rate in the microfinance sector is anticipated to rise further as seen in the case of Karnataka.

"The Tamil Nadu government is also introducing a bill aimed at fair collection and recovery practices, signaling further regulatory shifts in the sector, the further impact of which is yet to be seen," CRIF High Mark said.

Tamil Nadu saw a 7.7% quarter-on-quarter dip in gross loan portfolio while it was a 7% fall in Karnataka as lenders slowed disbursement anticipating trouble.

Overall, the sector's gross loan portfolio got squeezed 14% year-on-year to Rs 3.81 lakh crore.