Microfinance institutions (MFI) have seen their asset quality worsening in Q1FY25, with 90-plus days past due (dpd) loans — or bad loans — rising from 0.9 per cent in Q1FY24 to 1.2 per cent during the last quarter, MFI industry body Sa-Dhan said in a statement today.

“There has been slight deterioration in the portfolio quality under all buckets except the 180+ dpd during Q1FY25, compared to the corresponding quarter Q1FY24. PAR (portfolio at risk) 30+ dpd increased to 2.7 per cent from 2 per cent, PAR 60+ dpd slipped to 1.9 per cent from 1.4 per cent, PAR 90+ dpd increased to 1.2 per cent from 0.9per cent. In contrast, PAR 180+ dpd has slightly improved to 9.1 per cent from 9.7 per cent,” Sa-Dhan said.

According to Karan Gupta, Director of financial institutions at India Ratings & Research (Ind-Ra), headwinds have recently appeared for the MFI segment due to events such as heatwaves, elections, field-level attrition, among others. Further, over-leveraging in pockets also continues to be a reason for concern.

“The agency will continue to monitor the development in the sector closely even as MFI players have put corrective actions in place which could take one-to-two quarters to show results,” he said.

Further, the outstanding loans of MFI companies rose 20 per cent year-on-year (y-o-y) to ₹4.33 trillion as on June 30. Overall loans, however, reduced from ₹4.42 trillion in Q4FY24. The NBFC-MFIs continued to occupy the largest share of the pie with 40 per cent, followed by banks at 32 per cent and small finance banks at 18 per cent.

Jiji Mammen, ED and CEO, Sa-Dhan, said that there has been a consensus among the microfinance leaders on the need to slow the pace of loan growth. MFI loans are expected to grow at a moderate pace during the year, keeping the responsible lending guidelines issued by the SROs and the RBI, he said.

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