Microlending Challenges: Asset Quality Deterioration and Rising Delinquencies

Microlending outstandings dropped 4.3% to Rs 4.14 lakh crore in the September quarter due to lenders' cautious stance amid worsening asset quality. Unpaid loans increased significantly, with NBFCs being the only entities to grow their portfolios. The rise in delinquencies highlights challenges faced by the sector.

In the latest report, microlending outstandings fell by 4.3% to Rs 4.14 lakh crore during the September quarter, as lenders proceeded cautiously amidst deteriorating asset quality.

Delinquencies involving loans unpaid for 1-30 days rose to 2.1%, and those unpaid for 31-180 days saw a notable increase to 4.3%, according to credit information company Crif High Mark. The microlending sector faces multiple challenges, with regulatory concerns over industry practices such as multiple lending and high interest rates.

Only non-banking financial companies grew their portfolio in this period, registering a marginal rise of 0.7%, while other banks saw a decline. Delinquencies spiked, especially in top states like Bihar and Tamil Nadu, influencing a nationwide strategy shift within the microfinance industry.

(With inputs from agencies.)