Their desperate efforts to slow down micro-ticket lending to the bottom of the pyramid customers and instead raising the share of the secured portfolio did not prevent the rising credit cost. Microfinance loans are unsecured as these are not backed by collateral.
A close look at their second quarter numbers showed that 75-80% of the fresh slippages of loans into the non-performing category are on account of the microfinance business for many of these lenders.
Bandhan Bank, for example saw a fresh slippage of Rs 1,115 crore in the second quarter with Rs 752 crore, ie about two-third, coming from the microfinance portfolio. Slippages for the quarter were higher against the preceding quarter’s Rs 890 crore due to the stress in the microfinance sector.
Bandhan’s gross non-performing assets deteriorated to 4.68% at the end of September from 4.23% three months prior to that.
“Most of the stress… about 80% of it is coming from the microfinance side. It is an industry-wide phenomenon and we are also facing the challenges,” Ujjivan Small Finance Bank managing director Sanjeev Nautiyal told ET in a recent interview.Bandhan’s share of the secured portfolio rose to 47% at the end of September from 42.8% six months back.The bank’s microfinance lending to individual as well as group-based borrowers shrank 4% at Rs 59,288 crore at the end of September from what it was three months back, as a result of portfolio controls in the wake of elevated risks in the industry, chief financial officer Rajiv Mantri said in a port-earnings analysts call.
Likewise, Jana Small Finance Bank and Ujjivan Small Finance Bank too raised the share of secured lending and slowed down microfinance lending. For Jana, the share improved to 64.6% from 59.6% between March and September while for Ujjivan, it rose from 30% to 35%.
But that did not save them from the asset quality deterioration in the microfinance books.
“We have seen elevated delinquency in the MFI business, which has resulted in higher GNPA and de-growth in MFI business,” managing director Ajau Kanwal said, after announcing the bank’s quarterly numbers.
About 5% of Jana’s Rs 9,348 crore of unsecured portfolio has turned NPA, while it was just about 1.7% of the Rs 17,063 crore of secured portfolio. About 10% of the NPA within the unsecured books was on account of micro loans given through business correspondents.
Equitas Small Finance Bank, which managed to reduce the share of microfinance lending to 16%, faced the pain too.
Due to the on-going stress in the microfinance sector, the credit cost for this portfolio has risen significantly to 10.18%, said Equitas managing director PN Vasudevan. However, since micro finance constitutes only about 16% of the bank’s total portfolio, the overall credit cost for the bank (excluding the one-time floating provision), came to 2.59%. Its gross non-performing assets ratio rose to 2.95% at the end of September from 2.67% three months prior to that.
All the three—Equitas, Jana and Ujjivan—saw their second quarter net profit dwindling. Equitas Small Finance Bank saw it plummeting 93% at Rs 13 crore largely due to additional provision. Jana reported a 21.3% drop in net profit at Rs 97 crore while Ujjivan saw a 29% dip at Rs 233 crore.
Bandhan’s second quarter net profit however rose 30% at Rs 937 crore against Rs 721 crore in the year-ago period. But it was lower as compared to the preceding quarter’s Rs 1,064 crore