Pressures on asset quality on the ease of microcredit at T2Fy22: CRIF High Mark

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Reflecting a turnaround in the microfinance space, the pressure on asset quality has eased sequentially with loans in the 30-day and over tranche past due (DPD), falling to 10.4% as of rate for the quarter ended in September, compared to 15% in April-June.

However, the 90+ DPD remained stable at 3.3% during the July-September period, similar to April-June, according to the credit bureau CRIF High Mark.

While the over 30 DPD was 9.5% in March 2021, it was 4.4% for the over 90 DPD bucket in the same month. This cannot be compared to the figures for September 2020 due to the moratorium granted on reimbursements for March-August 2020 due to the adverse effects of the first wave of Covid. It is also because the Supreme Court had granted a temporary stay to label the accounts as non-performing loans.

The gross loan portfolio (GLP) in India’s microfinance sector grew 2.1% to Rs 2.49 trillion at the end of September 2021, from Rs 2.43 trillion at the end of June 2021.

This came after a decline of almost 7% qoq in the previous quarter (Q1 of FY22), which was marked by the negative impact of the second wave. The GLP was Rs 2.61 trillion in March 2021.

Year-over-year growth of BPL was 6% in September 2021. BPL was 2.35 trillion rupees as of September 30, 2020. Urban and rural areas showed sequential increase in BPL in the second quarter of FY22 compared to Q1 of FY22, a sign of a general recovery in economic activity.

Not only small businesses, but also microfinance institutions lending to these businesses suffered heavy losses due to the second wave of the first quarter of fiscal 22.

As the effects continue to linger, the second quarter marked a turnaround for the microfinance industry with increased disbursements. However, lenders should always be careful about the quality of assets, CRIF said in a review.

Signaling a possibility of new business, CRIF data showed that new loan applications (NTCs) between July 2021 and September 2021 were in the range of 18-20%. NTC inquiries rose to 24% in October 2021.

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