Mumbai: Small loan specialists in India that usually serve people without a bank account face a default surge related to a pandemic that can force some of them out of business, industrial experts warn.
The 30-day maturity loan is expected to reach 14-16% of all called microfinance loans immediately after Second of Covid-19 Wears India, said Sitanaman Krishnan, Senior Director on Credit Natten Rating Crisil.
It was higher than 6-7% in March, before the second wave survived, and also above 11.7% achieved in March 2017 after demonetisation drive – efforts to increase digital transactions and follow up money that are not stored hard micro loans.
“Longer loans taken in 2019 or early 2020 are at a higher risk of default and they form around 60-65% of loan books for lenders,” said Harsh Shrivastava, former Head of Micro Network Institution, an association representing the sector in India.
Rahul Johri, chairman of a vector finance, a microfinance company that provides loans to small companies, says many steps support brought by the government only helps larger institutions, while small players have struggled.
“This has become a problem of existence for some small and medium microfinance institutions because business has been very affected and the collection drops,” Johri said.
Loan billing efficiency in all collection loans has dropped to around 70% of the peak of almost 95% in March, analysts said, indicating the potential to build in stress.
The gross loan portfolio of Indian microfinance lenders reached 2.6 trillion rupees ($ 35 billion) on March 31, according to Crisil.
The road was bumpy in front even though there were short-term challenges, some remained bullish in this sector and expect it to rise again if the third wave anticipated by Covid-19 infection in India was not so severe.
“About 55% of the market is still not utilized which means there is a very large market opportunity …
so everything will soon be looking,” Johri said.
But for now, many smaller microfinance companies struggle.
Such companies, usually with loan books less than Rs 500 Crore ($ 67 million), have also seen their funding costs up 100-150 points as banks and companies become less willing to lend to them, said an industrial executive, said An executive, talking to the terms of anonymity.
Some microfinance companies must have a return scale of capital increases due to warm interest in investors, said the head of two companies that have been looking to raise funds.
As a smaller player shaken, some have stopped paying salaries, or incentives to employees in recent months, they added, asking not to be identified because of the sensitivity of the problem.
“We now only get basic salaries, incentives have completely stopped in the past few months because the collection fell,” said a collection agent in one microfinance lender in East India.