Rising exposure of MFI loans per lender worries industry

Chennai: In a trend that can be worrisome for the micro finance industry, eastern states have witnessed a sharp increase in the number of loans offered to a single borrower as well as rise in average ticket size. Industry observers are concerned about this leading to higher levels of defaults in the event of unforeseen eventualities.

Average ticket size of loans has increased by around 15 per cent in fourth quarter of FY19 compared to the same quarter in FY18, finds Kotak Institutional Equities (KIE).

"We have seen average ticket size moving up after demonetisation. Prior to demonetisation, the ticket sizes used to be anywhere between Rs 20,000 and Rs 40,000 and now they are anywhere between Rs 30,000 and Rs 60,000,' said M B Mahesh, Associate Director, KIE.

The increase is sharper in eastern states like West Bengal and Assam where 40 per cent of the portfolio has average ticket size of more than Rs 60,000.

"Growth in ticket size is fine if the income levels are also rising. But we do not have data as to ascertain whether income levels are rising at the same pace," he said.

In fact, what is more worrying is the average exposure per borrower increasing at a sharper pace, indicating increase in number of loans offered to a single borrower. The increase is sharper in eastern states like West Bengal and Assam. The number of borrowers in association with four or more lenders rose 50 bps to 1.2 per cent and 100 bps to 2.4 per cent in West Bengal and Bihar  in 4QFY19 against the year ago quarter.

As of now, the eastern and north-eastern states have reported robust pace of business growth and superior asset quality. NBFC-MFIs aligned with Micro Finance Institutions Network reported 60 per cent y-o-y rise in MFI loans in Assam, Bihar, Jhar-khand, Odisha and West Bengal and the share of loans increased 500 bps y-o-y to 38 per cent. As far as asset quality is concerned, PAR 30 in the eastern states of West Bengal, Bihar, Assam and Odisha was stable around 0.3-0.7 per cent.

"However, increased exposure per borrower can become a cause of worry at the time of an eventuality. We have seen asset quality deteriorating in Kerala after the floods and parts of Orissa after cyclone," said Mahesh.