The micro finance sector in the eastern states of India has recorded fastest growth in the past two years, transforming the region from one with least share of NBFC MFI loans to one with the highest share. While the overall parameters remain superior in the region, the industry has concerns about the fast growth.
In terms of regional distribution of gross loan portfolio (GLP), east and northeast accounts for 36 per cent of the total NBFC MFI portfolio, as per the data with Microfinance Institutions Network (MFIN). The southern region accounts for 26 per cent, north 15 per cent, west 15 per cent and central region 8 per cent. In 2016, eastern region had the lowest share -- 16 per cent -– while south had the highest share of 31 per cent.
MFI business continues its robust growth in eastern India and we are seeing greater focus by all players on this region, finds Kotak Institutional Equities. NBFC-MFIs saw an 80 per cent y-o-y rise in MFI loans in eastern India and the share of loans increased 36 per cent. Notably, 55 per cent of incremental client addition from 2QFY18 to 2QFY19 was from these states while 50 per cent of incremental branch additions were in this region during this period.
“Eastern region, due to its lower exposure to micro credit, was not affected by demonetisation. In the past two years, most of the MFIs have ramped up their operations in the region. This saw the region growing faster than the rest of India,” says Harsh Shrivastava, CEO, MFIN. Odisha and Bihar are among the top five states in terms of MFI loan portfolio.
As of now, most of the health parameters in the region are superior to other regions. This includes better loan growth, asset quality and increasing penetration levels. However, Kotak finds the swift increase in average ticket size as a concern.
“The customers’ eligibility to borrow higher amount goes up with time. This results in the average ticket size of loans going up. While as of now, the parameters are superior, there are always reasons to fear about the asset quality considering the experiences MFIs had earlier in other regions,” said Karthik Srinivasan, group head, financial sector rating, ICRA.
According to him, after demonetisation, asset quality had depleted in many of the key markets and the disbursements too were affected. Players started expanding in the eastern region as it was least affected and rebalancing their portfolio. “But the pace of growth is not devoid of concerns,” he added.
Supreeta Nijjar, vice-president, financial sector rating, ICRA, finds that penetration is overheated in parts of West Bengal and some pockets of Odisha. “If the leverage levels go up, it could become a matter of concern,” she says. While as per the RBI norms, only two MFIs can provide loan at a time to a person. But if banks and small finance banks too provide loans to the same person, the chances of default go up.