Tamil Nadu saw a 2.3% quarter-on-quarter squeeze in the state’s microfinance outstanding portfolio to Rs 38,900 crore at the end of March, while Karnataka recorded a mere 1.1% growth during the period, data from credit information company Crif High Mark showed. Karnataka had outstanding microfinance loans of Rs 28,600 crore at March-end.
India’s overall microfinance market saw an average growth of 3.2% in the fourth quarter, signifying expansion after seven consecutive quarters of contraction. The market size increased to Rs 3.31 lakh crore at the end of March from Rs 3.21 lakh crore three months ago, the data showed.
The credit quality in Karnataka and Tamil Nadu improved in line with the overall improvement. Yet, some lenders including banks may still have gone slow in lending in these two states, leading to degrowth or slower growth, said the chief executive of a leading non-banking financial company-micro finance institution.
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Liquidity, or the lack of it, in the hands of smaller microfinance companies was another reason for slow business expansion.
On the other hand, Bihar, now India’s largest microfinance market, is yet to see any impact following the enactment of similar prohibitions in late February. The eastern state’s microfinance business recorded 8.9% quarter-on-quarter growth to Rs 53,100 crore, making it the fastest-growing among the top 10 states.
The top 10 states together accounted for about 85% of the microfinance loan originations in the fourth quarter.
The sector is primarily regulated by the Reserve Bank of India, but several states have introduced their own laws to prevent predatory lending and protect vulnerable borrowers from coercive recovery practices by unregistered, local lenders. However, the enactment of such laws has largely been followed by a sudden dip in loan repayment even by borrowers with regulated entities.
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Although the microfinance market recovered in terms of portfolio outstanding, the number of active loans continued to decline in the fourth quarter, reflecting a shift towards higher loan ticket size. Following a risk-first strategy to manage overleveraged borrowers and high bad loans, lenders have been showing preference for giving bigger loans to their loyal, long term borrowers.
The credit bureau report showed that the value of loan originations increased about 26% quarter-on-quarter to Rs 77,555 at the end of March. Karnataka, for instance saw 42% of its loan originations in the fourth quarter valued at more than Rs 80,000. The ratio was 34.1% a year ago. The comparative ratio for Tamil Nadu was 49.5%, as against 36.7% in the year-ago period.