Microfinance: Small loans become big nuisance, NPAs up 1.38% to 6.54%, impact on entire banking industry

The problem of non-performing assets (NPAs) in the non-banking finance sector of the country has become serious again. Loan repayment has become more difficult, especially in the micro finance sector. It is affecting the entire banking industry. Because micro finance companies get funds from banks and NBFCs. Provisioning of NBFCs rose to 78% in July-September and up to 67% of some banks' loans are trapped by microfinance.

NPAs of the micro finance segment increased by 1.38% to 6.54% in the July-September quarter. Although NPAs of banks increased by only 0.01% to 2.1%, its share in the total loan book of banks is 9%. So a serious effect is being seen. Following this, for the first time in 6 years, the provisioning of NBFCs to cover NPAs has increased by 1.75 times. It includes the top NBFCs of the country.

Personal loan pace halved in the year, growth from 25% to 18% The effect of having so much money trapped in MFIs is visible. According to the Reserve Bank, the growth rate of personal loans has decreased from 32% to 13.5% in 1 year. Loan growth has also fallen to 13% by September. Iqra estimates that the sector's AUM growth will decelerate to 16-18% in 2024-25. In the last financial year it was around 25%.

If the limit is removed, they start charging indiscriminate interest, this is the big reason In 2022, the Reserve Bank removed the maximum interest rate charged by Micro Finance Institutions (FMIs) from customers. Earlier MFIs could charge up to 12% more interest against the fund cost of customers but now there is no such provision. Due to this their interest rates have reached up to 27%. This is the biggest reason for loan default.

Defaulters more in Gujarat, MP, Maharashtra