The dealing with internal factors would mean entities require more discipline and emphasis on corporate governance and compliance. The rise in stress in the microfinance sector is cyclical and for State Bank of India, the bad loans have grown from Rs 100 crores to Rs 700 crores for Rs 10,000 crores portfolio of such loans acquired from the market, according to a senior SBI executive. “These are temporary challenges and the bank’s (SBI) view is that things will begin to improve in the current quarter (Q4Fy25) and the first quarter of next financial year (Q1Fy26). SBI is supporting the micro finance institutions (MFIs) through this phase,” said Govind Narayan Goyal, Chief General Manager, SBI said at lender-investor meet organized by MFI self-regulatory organization Sa-Dhan. Goyal said SBI is financing in three forms. One form is the co-lending through MFIs, second is the pool purchase i.e acquiring MFI loans through direct assignment and third, extending term credit to firms for on-lending.
According to credit information bureau CRIF-Highmark data the quarter ended September 2024 (Q2Fy25) witnessed further increase in delinquencies across all Days Past Dues (DPD) bands. DPDs indicate how many days a borrower is late on loan payment. Delinquencies spiked across all ticket sizes and lender types– universal banks, small finance banks and non-banking finance companies working as MFIs etc. The 31-180 days DPDs levels rose from 2.2% in September 2023 to 4.8%. The asset quality stress cycle of non-bank finance companies (NBFC)-MFIs could continue in the near term, as tight funding from lenders could add to the challenges of the sector. Moreover, normalization of delinquencies is expected only by the second half of next financial year (2HFy26) as the efforts by industry participants start reflecting in the performance, according to the MFI sector outlook from India Ratings and Research released in early January.
Elaborating on the current phase, Goyal said this time the stress looks to be driven by the internal factors and hence MFIs need to improve governance and risk management. In COVID time, again the same problem was there. But it was due to external factors. The dealing with internal factors would mean entities require more discipline and emphasis on corporate governance and compliance. Bank is supporting the MFI sector which is very important for the system. The MFI sector should also give confidence to the market, he added.
Source : https://www.business-standard.com/industry/banking/mfi-sector-stress-cyclical-pushing-up-npas-sbi-executive-125011701189_1.html
