The sector’s portfolio shrank 4% to ₹3.26 lakh crore at the end of June from ₹3.39 lakh crore three months earlier, data collated by credit information company Equifax India showed. Industry executives said business usually slows during the slack season, but irregular rainfall added to concerns over rural incomes and repayment behaviour. The contraction comes after the sector had seen a rebound in March after seven straight quarters of decline.
Bandhan Bank, the country’s largest microfinance lender, said it remains cautious in terms of growing the micro loans due to less predictable monsoon pattern and ongoing geopolitical uncertainties. Its individual and joint liability micro loans-together called emerging entrepreneurs business (EEB)-contracted to ₹52,640 crore at the end of June from ₹52,810 crore a year ago.
Fuel price increase, in particular, led to an increase in operating costs of lenders who send their two-wheeler using field force to deeper pockets for business generation and repayment collection. “Given the uncertain environment, we are cautious to grow our high-yielding EEB book. We expect these pressures to persist for the next few quarters,” Bandhan Bank managing director Partha Sarathi Sengupta said last month.
Bad Weather Concerns over rural incomes, repayment behaviour make banks cautious
The southwest monsoon gained momentum in the last week of July, although cumulative rainfall remains 16% below the long-term average due to uneven regional distribution. The improved rainfall is expected to boost sowing of kharif crops, even as the area sown remains below last year’s level.
“Rains have been improving, but still we felt that it would be prudent on our part to take into account some of these risks which could emerge over the later part of the year,” IDFC First Bank managing director V Vaidyanathan said, referring to the provision it made to cover the likely risk. “There could still be some bit of uncertainty here and there.”
Portfolio contraction was the sharpest for the private bank group, declining to ₹79,023 crore at the end of June from ₹89,548 crore on March 31. Pure-play microfinance companies, classified as non-banking financial companies-microfinance institutions, saw their cumulative portfolio value drop to ₹1,40,203 crore from ₹1,41,704 crore, while the gross microfinance loan book for small finance banks fell to ₹48,759 crore from ₹50,725 crore, data from Equifax showed.
In contrast, other non-banking financial companies saw a marginal increase in their cumulative microfinance portfolio to ₹46,887 crore from ₹46,158 crore.
In the March quarter, the microfinance sector saw an increase in gross loans for the first time after seven consecutive quarters of decline.