Microlending Shows Robust Growth Despite Marginal Increase in Defaults

The micro loans portfolio of various lenders saw a year-on-year growth of 27% in March 2024. Despite a slight increase in defaults, personal loans and unsecured lending showed significant growth, with microfinance borrowers favoring gold loans. Non-Banking Finance Companies lead the market, followed by banks and Small Finance Banks.

The micro loans portfolio of various lenders surged by 27% year-on-year in the March 2024 quarter, according to a report released on Tuesday.

The report by Crif High Mark highlighted a marginal uptick in stress levels due to loan defaults, though overall stability has persisted in recent quarters.

Regulators raising alarms on unsecured loans found supporting data, as microfinance borrowers' personal loan outstandings grew 38%, the second-fastest pace among retail assets.

Gross loan portfolios rose 28% to Rs 4.42 lakh crore by December 2023, with notable growth in West Bengal, Bihar, and Uttar Pradesh during the January-March quarter.

Assets overdue between 31 and 180 days increased to 2.1% in March from 2% in December 2023. Tirunelveli, Coimbatore, and Madurai districts in Tamil Nadu faced the highest asset quality stress.

The average balance per account in Tamil Nadu topped national figures with Rs 62,200 per borrower. Borrowers with four or more active loans showed higher delinquency rates, with Karnataka having the most borrowers with active loans.

The report also noted a decline in the proportion of MFI borrowers holding active retail loans to 14.2% from 14.9% the previous year. Despite concerns, unsecured personal loans grew 38%, while property loans increased by over 41%.

Gold loans remained the most preferred retail lending product, with 41.2 lakh active loans totaling Rs 35,679 crore. Non-Banking Finance Companies hold the largest market share at 39.2%, trailed by banks with 33.2% and Small Finance Banks with 16.9%.