Banks on edge as small borrowers fail to repay

Rising delinquencies worsening asset quality pain of microfinance sector

- Anshika Kayastha

The asset quality pain emerging from the microfinance sector has intensified, with most private sector banks and some state-owned lenders getting singed by a surge in delinquencies.

While some of the elevated stress was due to seasonal agriculture loan slippages, which tend to rise in the first and third quarters of each financial year, much of it was due to other factors.

These included increased borrower indebtedness, rising early-stage delinquencies in small-ticket loans, increased spending during the festival season, and a fall in collection efficiencies owing to elections in several states.

The stress has resulted in elevated provisioning as lenders set aside buffers against these delinquencies, subsequently weighing on their operating profit and the bottomline.