The quarterly average ticket size of Micro Finance Institutions (MFIs) loan disbursal rose 43% from Rs 35,000 to Rs 50,000 between September 2021 to 2024, as per the Financial Stability report of the IIFL Capital.
The report, however, noted the issue of delinquencies, as it observed that the rate was high among borrowers with loans from multiple lenders and those with higher credit exposure. The report highlighted that nearly half of the borrowers availing the unsecured loans have another live retail loan, often a high-ticket loan.
About 11% of borrowers with Personal Loans (PL) greater than Rs 50,000 had an overdue personal loan, and over 60% had availed more than three loans during FYTD. Moreover, nearly three-fifths of customers who availed of personal loans in 2QFY25 had more than three live loans at the time of origination. As a result, impairment is rising in unsecured loans.
However, following higher risk weights since Nov’23 and rising AQ stress, lenders have been tightening credit filters, as reflected in a moderation in inquiry volumes and approval rates, the rising share of prime and above customers across products and lenders, and a significant pullback in PL to lower income groups.
In the Financial Year (FY) 2024, as per the report, Banks opened 5,400 branches, the highest at least since FY16, and 42% of these were opened in centers with a population of less than 50 thousand. Around two-thirds of total new branches in FY24 were opened by Private banks, and 45% of these were in SURU areas.
Loan Disbursal: More Details
The gap between loans and deposits has narrowed, with both expanding 11.5% year over year as of mid-December. Loan-to-deposit ratio (LDR) which was increasing in part because of increased profitability and a corresponding increase in equity capital, has stabilized at about 80%, as per the report.
LDR is used to assess a bank’s liquidity by comparing a bank’s total loans to its total deposits for the same period. The report highlighted that over the last three years, retail segments have been the primary drivers of incremental credit expansion, with large corporations accounting for only 5% of this total.
Private banks continue to expand their total deposits and CASA deposits at a rate that is 1.7-2 times faster than PSU banks, notwithstanding a notable slowdown in growth. Going further the report added that the Indian banks are on a strong footing, characterized by a healthy 14% loan Compound annual growth rate (CAGR) in the last 3 years, NPA ratio at a 12-year low, Provisioning Coverage Ratio (PCR) up 10 percentage points, capital ratio up 50 basis points (bps) and Return on Assets (RoA) improvement of 70 bps since FY21.
The report also highlighted that India Inc.’s profitability remains healthy, and their debt serviceability continues to improve. However, Non-performing Assets (NPAs) have bottomed out with slippages inching up and upgrades/recoveries slowing, the report added.
