Banks cede microfinance ground to NBFCs

Mumbai, Mumbai, Feb 19, 2024

Banks' share in the outstanding loans to microfinance companies has dropped to 31% in Sept 2023 from 40% in Sept 2021. Banks have lost market share to non-banking finance companies and small finance banks during the period, with both these categories of lenders increasing their share.

NBFCs (microfinance companies) had lost market share in loans during the onset of the pandemic due to a credit crunch faced by finance companies.

RBI had also shifted to activity-based regulation, harmonising a lot of the rules for banks and finance companies.

However, in the last two years, MFIs have bounced back, growing faster than the industry. Over two years, their loan book has grown 86%, while banks have grown only 19%, and small finance banks have grown 77%.

According to CRIF Microlend, a report on the industry by the credit bureau, banks had outstanding loans of Rs 1.2 lakh crore to the MFI segment. As against this, MFIs had a loan book of nearly Rs 1.5 lakh crore, with small finance banks having Rs 72,873 crore as of Sept 2023.

Two years earlier, at the end of Sept 2021, the MFI portfolio of banks stood at a little over Rs 1 lakh crore, MFIs at Rs 79,595 crore and small finance banks at Rs 41,158 crore.

MFI's are focused on small ticket loans to those at the bottom of the pyramid. Banks are also active in the space as these loans qualify for priority sector. Most small finance banks were originally MFIs that obtained a bank licence.

According to the report, the gross loan portfolio has increased 26% as of Sept 2023 to Rs 3.8 lakh crore from Rs 3 lakh crore two years ago.

[The Times of India]