Sector Update | 29 November 2019
Sector Update | Financials
Microfinance loan growth robust, but ticket size increase
Concentration risk rising as top-30 districts account for 24% of total MFI loans
Despite the economic slowdown, the gross loan portfolio growth in the microfinance
industry is robust at 48% YoY, according to MFIN’s latest release.
Top-5 key states account for ~55% of the total microfinance loans while the top-30
districts account for ~24% of the total portfolio.
During FY16-19, MFI loans disbursed in the INR50-60k ticket size bucket saw 55% CAGR
while those in the INR60k+ ticket size bucket registered sharp 108% CAGR. Thus,
increasing ticket size per borrower reflects caution in the sector.
West Bengal has the highest average ticket size per borrower at INR54k followed by
Assam/Tamil Nadu at INR52k/INR43k.
Further, we attended SIDBI’s National MicroFinance Congress 2019 event, wherein
panelists from diverse backgrounds (Regulator, rating agencies, Bureau companies)
highlighted that (a) loan exposure per borrower is currently 4-5 times the monthly
income as seen in a few districts, (b) strong growth opportunity in Uttar Pradesh,
Madhya Pradesh and Jharkhand to increase the borrower base and average ticket size,
and (c) MFIs raised total INR262b through securitization, up 200% YoY during FY19.
Total number of unique
borrowers stood at 54.6m
Microfinance loan growth robust despite economic slowdown
The microfinance industry’s gross loan portfolio growth remained robust at 48% YoY
to INR2,017b despite macro-economic challenges, which led to moderation in
systemic loan growth at 8.1% YoY. The total number of active micro finance loan
accounts has increased 32% YoY to ~98m. The gross loan portfolio showed a sharp
34% CAGR while disbursements registered 27% CAGR during FY16-19. As at 2QFY20,
total unique borrowers stood at 54.6m.
Concentration risk rising; Top-5 states account for 55% of the total micro loans
The top-5 key states (Tamil Nadu, West Bengal, Bihar, Karnataka and Maharashtra)
account for 55% of the total microfinance loans. Further, the East and the North-
East regions account for 40% of the total industry. During FY16-2QFY20,
microfinance loans in Bihar/West Bengal expanded sharply at 48%/35% v/s industry
growth of 31%. Further, the top-30 districts account for 24% of the total outstanding
portfolio (as on FY19). All this points toward concentration risk rising in few
states/districts led by increasing average ticket size, which in turn reflects caution in
West Bengal/Assam has the highest ticket size compared to other MFI states
In order to maintain robust loan growth momentum in the industry, various MFI
players have increased the average ticket size in some key geographies, such as
West Bengal, Assam and Tamil Nadu. During FY16-19, MFI loans disbursed in the
INR50-60k ticket size bucket saw 55% CAGR while those in the INR60k+ ticket size
bucket registered sharp 108% CAGR. West Bengal has the highest average ticket size
per borrower at INR54k followed by Assam/Tamil Nadu at INR52k/INR43k.
Asset quality largely stable; however witness rising risk levels in PAR>30
The new NPL formation remains low with PAR>90 at ~0.4%. However, risk levels in
the PAR>30/PAR>60 are rising and increased 8bp each QoQ to ~1% /0.7%. Among
MFI institutions, NBFCs/banks witnessed 24bp/13bp QoQ increase in PAR>30.
The top-30 districts itself
account for 24% of the total
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542
(Parth.Gutka@motilaloswal.com); +91 22 6129 1567
(Alpesh.Mehta@MotilalOswal.com); +91 22 6129 1526
(Himanshu.Taluja@motilaloswal.com); +91 22 6129 1544
(Yash.Agarwal@motilaloswal.com); +91 22 6129 1571
Investors are advised to refer through important disclosures made at the last page of the Research Report.
29 November 2019
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.