Microfinance loan growth robust, but ticket size increase reflects caution
Concentration risk rising as top-30 districts account for 24% of total MFI loans
* Despite the economic slowdown, the gross loan portfolio growth in the microfinance industry is robust at 48% YoY, according to MFIN’s latest release.
* Top-5 key states account for ~55% of the total microfinance loans while the top-30 districts account for ~24% of the total portfolio.
* During FY16-19, MFI loans disbursed in the INR50-60k ticket size bucket saw 55% CAGR while those in the INR60k+ ticket size bucket registered sharp 108% CAGR. Thus, increasing ticket size per borrower reflects caution in the sector.
* West Bengal has the highest average ticket size per borrower at INR54k followed by Assam/Tamil Nadu at INR52k/INR43k.
* Further, we attended SIDBI’s National MicroFinance Congress 2019 event, wherein panelists from diverse backgrounds (Regulator, rating agencies, Bureau companies) highlighted that
(a) loan exposure per borrower is currently 4-5 times the monthly income as seen in a few districts,
(b) strong growth opportunity in Uttar Pradesh, Madhya Pradesh and Jharkhand to increase the borrower base and average ticket size, and
(c) MFIs raised total INR262b through securitization, up 200% YoY during FY19.
Microfinance loan growth robust despite economic slowdown
The microfinance industry’s gross loan portfolio growth remained robust at 48% YoY to INR2,017b despite macro-economic challenges, which led to moderation in systemic loan growth at 8.1% YoY. The total number of active micro finance loan accounts has increased 32% YoY to ~98m. The gross loan portfolio showed a sharp 34% CAGR while disbursements registered 27% CAGR during FY16-19. As at 2QFY20, total unique borrowers stood at 54.6m.
Concentration risk rising; Top-5 states account for 55% of the total micro loans
The top-5 key states (Tamil Nadu, West Bengal, Bihar, Karnataka and Maharashtra) account for 55% of the total microfinance loans. Further, the East and the NorthEast regions account for 40% of the total industry. During FY16-2QFY20, microfinance loans in Bihar/West Bengal expanded sharply at 48%/35% v/s industry growth of 31%. Further, the top-30 districts account for 24% of the total outstanding portfolio (as on FY19). All this points toward concentration risk rising in few states/districts led by increasing average ticket size, which in turn reflects caution in the sector.
West Bengal/Assam has the highest ticket size compared to other MFI states
In order to maintain robust loan growth momentum in the industry, various MFI players have increased the average ticket size in some key geographies, such as West Bengal, Assam and Tamil Nadu. During FY16-19, MFI loans disbursed in the INR50-60k ticket size bucket saw 55% CAGR while those in the INR60k+ ticket size bucket registered sharp 108% CAGR. West Bengal has the highest average ticket size per borrower at INR54k followed by Assam/Tamil Nadu at INR52k/INR43k.
Asset quality largely stable; however witness rising risk levels in PAR>30
The new NPL formation remains low with PAR>90 at ~0.4%. However, risk levels in the PAR>30/PAR>60 are rising and increased 8bp each QoQ to ~1% /0.7%. Among MFI institutions, NBFCs/banks witnessed 24bp/13bp QoQ increase in PAR>30.
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