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It will take another six months for the microfinance industry (MFI) to completely recover from the effect of demonetisation, which saw collection rates falling substantially resulting in the rise of non-performing assets (NPAs).
Repayment of microfinance loans came to a grinding halt post the announcement of note-ban in November 2016. The problem was further aggravated following farm loan waiver announcement, which affected the repayment culture of borrowers.
Industry experts, however, feel that the sector may be in the last leg of demonetisation-induced pain.
According to Ratna Vishwanathan, former CEO, MFIN (Microfinance Institutions Network), NPAs have come down from 23 per cent in the period following demonetisation to 4 per cent at present, within a span of one year. This is expected to come down further to 2 per cent moving forward.
“Post February 2017, industry’s collection rate improved to over 90 per cent (as against 98-99 per cent in the pre-demonetisation period). Within a span of next six months things should be back on track,” Vishwanathan told newspersons on the sidelines of a microfinance summit organised by Association of Microfinance Institutions – West Bengal (AMFI-WB) here on Thursday.
MFIN had estimated write-offs by NBFC-MFIs to be to the tune of ₹5,000 crore. A majority of the delinquent accounts came from States like Karnataka, Madhya Pradesh, Uttar Pradesh, Uttarakhand and Maharashtra.
Nearly, 30 per cent of the amount stuck as bad loans comes from the Vidarbha district of Maharashtra alone.
However, things are looking up and collection has improved in Uttar Pradesh and Madhya Pradesh, she said.
The industry, which includes banks, NBFC-MFIs, NBFCs and other MFIs, has a total loan portfolio of over ₹1 lakh crore. Banks hold the biggest share in the pie.
Bandhan Bank, which transformed into a universal bank from an MFI, said that collection of repayments, which had been affected post-demonetisation, is improving.
“The problem is gradually tapering off but we did not have”to make any substantial write-offs,” CS Ghosh, MD and CEO, Bandhan Bank, said.
Ujjivan Small Finance Bank had to write-off loans worth ₹300 crore.
“The impact of demonetisation is in its last leg now. We expect things to start improving by end of this fiscal,” Samit Ghosh, MD, Ujjivan SFB, said.
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