New Delhi: The third quarter of the 2024-2025 financial year is likely to see a dent in banks’ earnings due to slippages from unsecured loans, mainly in the microfinance sector.
A slippage happens when a borrower does not pay an agreed-upon amount towards resolving their bank loan for 90 days and it becomes a non-performing asset.
Financial Express has reported on the basis of quotes from experts that slippages and overdue loans are likely to affect microfinance lenders particularly. Microfinance delinquencies will likely peak in the first half of FY25.
According to bankers, delinquencies in microfinance loans have surged in Bihar, Tamil Nadu, Uttar Pradesh, and Odisha, which together account for nearly two-thirds of the incremental bad loans, the report said.
Experts have blamed challenges in deposit mobilisation and low corporate credit growth. However, it is also true – based on numerous ground reports, including by The Wire – how microfinance lending has brought the poorest of Indians to a dire state of helplessness.
“Unsecured loans, including credit cards, would also see higher slippage quarter-on-quarter (QoQ). But vehicle finance, housing finance, mid and large corporates and secured retail appear safe,” a report by Nuvama Institutional Equities is quoted as having said.
Indian Express has additionally held that some lenders may see some worsening of asset quality driven by a rise in slippages in the agriculture sector too.
Signs of stress in the banking system are showing as several banks are looking to sell their bad loans.
Private lender IndusInd Bank Ltd said late last year that it has invited bids on a 100% cash basis to offload its non-performing microfinance loan pool of 10.6 lakh retail loan accounts amounting to Rs 1,573 crore.
Utkarsh Small Finance Bank also announced a similar plan to sell off NPAs of around Rs 355 crore to an asset reconstruction company at a reserve price of Rs 52 crore. Its share value jumped 4% after this.
The small finance bank Ujjivan Small Finance’s shares jumped 8.7% in November 2024 after it completed the sale of a stressed loan portfolio worth Rs 270.35 crore.
