Sector Update | 29 November 2019
Sector Update | Financials
Financials
Microfinance loan growth robust, but ticket size increase
reflects caution
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
the sector.
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
outstanding portfolio
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542
|
Parth Gutka
(Parth.Gutka@motilaloswal.com); +91 22 6129 1567
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 6129 1526
|
Himanshu Taluja
(Himanshu.Taluja@motilaloswal.com); +91 22 6129 1544
Yash Agarwal
(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.
1
 Motilal Oswal Financial Services
Sector Update | Financials
SIDBI National MicroFinance Congress 2019
We attended SIDBI’s National MicroFinance Congress 2019 event, which saw
participation of all the leading micro financing players in panel discussions on the
future of the microfinance sector in India. Key takeaways are:
Concentration risk is emerging in the sector. In few districts, the loan exposure
per borrower is now 4-5 times their monthly income.
Intense competition to scale up has seen markets like Tamil Nadu getting
crowded with more than 15 MFIs operating in each village.
Tamil Nadu has the highest percentage of borrowers at 6.3% associated with 4
or more lenders.
There are strong growth opportunities in states like Uttar Pradesh, Madhya
Pradesh and Jharkhand to increase the borrower base and exposure per
borrower.
Securitization has emerged as a critical funding tool for NBFCs-MFIs over the last
three years. MFIs have raised a total of INR262b through securitization, which
increased 200% YoY during FY19.
In the near term, a new operating model through co-origination/joint lending
will provide a good alternate channel to NBFCs-MFIs to expand their loan
portfolio.
The lending rates in microfinance ranges between 20-30% in India while in some
countries, it is much higher at 40-50%. The average lending rate has reduced by
300bp over the last 7-8 years. As cost of fund reduces further, lending rates
should also reduce.
The usage of data analytics helps analysing customers that are new to credit.
The rejection rate in microfinance loan approval is seen at 40% through data
analytics.
Technology has played a key role across the value chain of the microfinance
sector. New sources of data such as data invoices, tax records, POS devices,
mobile phone usage, etc. are all elements being used to lower costs, strengthen
underwriting standards, etc. Also, it helps in preventing frauds and gives out
early warning signals.
Currently, over 90% of disbursements made are cashless.
29 November 2019
2
 Motilal Oswal Financial Services
Sector Update | Financials
Microfinance loan growth robust despite economic slowdown
The microfinance industry’s gross loan portfolio growth is robust at 48% YoY to
INR2,017b despite macro-economic challenges, which have led to moderation in
systemic loan growth to 8.1% YoY. Total active microfinance loan accounts have
increased 32% YoY to ~98m. While the gross loan portfolio showed a sharp 34%
CAGR, disbursements registered 27% CAGR during FY16-FY19. As at 2QFY20, total
unique borrowers stood at 54.6m.
Exhibit 1:
Total MFI industry AUM grew 44% over 2QFY18-2QFY20
Total micro finance industry AUM (INRb)
1,874
1,073
1,366
1,907
2,017
847
168
205
279
518
Source: MOFSL, Company
Exhibit 2:
Total active loan accounts increased 32% YoY
Total active loan accounts (m)
74.3
86.3
86.5
92.6
97.8
Exhibit 3:
MFI loan break-up across various MFI institutions
NBFC-MFIs
1%
27%
6%
38%
28%
Banks
1%
22%
8%
37%
33%
NBFC
1%
19%
11%
33%
37%
SFB
Others
1%
17%
11%
40%
31%
66.8
Source: MOFSL, MFIN
Source: MOFSL, MFIN
Exhibit 4:
Total loans disbursed showed 9% CAGR over FY16-
19
Total No. of loans disbursed (mn)
56.2
67.4
Exhibit 5:
Loan disbursements registered 27% CAGR over
FY16-19
Disbursements (INRb)
2,131
1,572
1,052
1,195
51.6
48.5
Source: MOFSL, EQUIFAX, SIDBI
Source: MOFSL, EQUIFAX, SIDBI
29 November 2019
3
 Motilal Oswal Financial Services
Sector Update | Financials
Concentration risk rising; top-5 states account for 55% of total micro loans
The top-5 key states (Tamil Nadu, West Bengal, Bihar, Karnataka and Maharashtra)
account for 55% of the total microfinance loans in the country. 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
the sector.
Exhibit 1: Top-5 states account for 55% of the total MFI loan market share
INR b
West Bengal
Tamil Nadu
Bihar
Karnataka
Maharashtra
Assam
Odisha
Uttar Pradesh
Madhya Pradesh
Kerala
Total 10 states
System level
Market share of Top 5 states
Market share of Top 10 states
FY16
101
110
53
81
81
37
38
72
53
30
657
847
55%
77%
FY17
152
151
85
99
97
55
52
81
60
38
869
1,073
54%
81%
FY18
196
188
117
110
89
80
82
84
73
58
1,077
1,366
51%
79%
FY19
1HFY20 CAGR FY16-FY19
270
288
39%
246
296
31%
180
210
50%
153
174
24%
124
140
15%
120
126
48%
114
115
44%
108
124
15%
99
114
23%
69
82
33%
1,484
1,669
31%
1,874
2,017
34%
52%
55%
79%
83%
Source: MOFSL, EQUIFAX, SIDBI, MFIN
Exhibit 6:
Region-wise MFI loan break-up
The East, North-East and
the South region account
for 68% of total
microfinance loans
7%
14%
40%
East & North-East
North
South
28%
10%
West
Central
Source: MOFSL, MFIN
29 November 2019
4
 Motilal Oswal Financial Services
Sector Update | Financials
Exhibit 7:
Microfinance penetration in key states
States
Puducherry
Tripura
Tamil Nadu
Sikkim
Assam
Odisha
Karnataka
West Bengal
Kerala
Bihar
Active
Borrowers (k)
133
389
6,853
24
2,401
3,209
4,311
5,370
1,848
5,309
Population
Concentration
Census
(%)
2011 (k)
965
14%
3,671
11%
72,139
9%
281
9%
31,169
8%
41,947
8%
61,131
7%
91,348
6%
33,388
6%
103,805
5%
Source: MOFSL, EQUIFAX, SIDBI
Exhibit 8:
Tamil Nadu has the highest percentage of
borrowers associated with 4+ lenders while West Bengal has
the lowest
No of borrowers associated with 4+ lenders (June'19)
6.3%
3.0%
2.3%
1.6%
1.2%
Source: MOFSL, EQUIFAX, SIDBI
Exhibit 9:
No. of MFIs state-wise as at 2QFY20
Bihar has the highest
number of operational
NBFCs-MFIs
5
7
10
12
13
No of MFI
16
17
18
19
20
20
21
24
25
26
26
26
28
35
Source: MOFSL, MFIN
Highest ticket size in West Bengal/Assam v/s 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, the MFI loans disbursed in the
INR50-60k ticket size range registered 55% CAGR while disbursements in the
INR60k+ ticket size showed sharp 108% CAGR. West Bengal has the highest average
ticket size per borrower at INR54k followed by Assam/Tamil Nadu at
INR52k/INR43k.
Exhibit 10:
West Bengal has highest ticket size v/s other MFI
states
Avg. MFI loan per borrower (INRk)
52.3
44.1
43.2
40.4
39.6
53.7
2.0
2.4
Exhibit 11:
Avg. MFI loan per capita (INRk)
Avg. MFI loan per capita (INRk)
4.0
3.2
2.8
2.7
4.1
35.9
Source: MOFSL, EQUIFAX, SIDBI
Source: MOFSL, EQUIFAX, SIDBI
29 November 2019
5
 Motilal Oswal Financial Services
Sector Update | Financials
Exhibit 12:
Avg. ticket size in outstanding loans
Avg. ticket size in loan outstanding (INRk)
28.0
31.6
Exhibit 13:
No of loans disbursed increasing in high ticket
sized loans
Ticket size
0-10k
10k-20k
20k-30k
30k-40k
40k-50k
50k-60k
60k+
Total
FY16
8.4
22.0
15.5
3.8
1.2
0.4
0.4
51.7
FY17
6.6
13.3
20.3
4.2
1.8
0.8
1.4
48.4
FY18
5.2
12.0
25.7
7.4
3.0
0.9
2.1
56.3
FY19
4.9
9.7
31.4
11.3
5.1
1.5
3.6
67.5
CAGR
(FY16-
FY19)
-16%
-24%
27%
44%
62%
55%
108%
9%
20.4
24.6
FY16
FY17
FY18
FY19
Source: MOFSL, EQUIFAX, SIDBI
Source: MOFSL, Company
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.
Exhibit 14:
PAR>30 reflects early signs of stress
PAR>30
NBFC-MFIs
Banks
SFB
NBFC
Others
2QFY19
0.9
0.6
1.1
0.5
0.1
1QFY20
1.1
0.6
0.8
2.0
0.4
2QFY20 YoY (bp)
1.1
0.7
0.8
2.2
0.6
17bp
12bp
-30bp
171bp
55bp
Exhibit 15:
PAR>90 largely stable
QoQ (bp) PAR>90
-3bp NBFC-MFIs
13bp Banks
3bp SFB
24bp NBFC
23bp Others
2QFY19
0.3
0.2
0.5
0.2
0.1
1QFY20
0.5
0.2
0.3
1.0
0.2
2QFY20 YoY (bp)
0.5
0.3
0.3
1.0
0.2
13bp
7bp
-11bp
79bp
18bp
QoQ (bp)
0bp
6bp
1bp
8bp
7bp
Source: MOFSL, MFIN
Source: MOFSL, MFIN
29 November 2019
6
 Motilal Oswal Financial Services
Sector Update | Financials
Exhibit 16:
Top-30 districts account for 24% of the total MFI loans
Top 30 districts
North 24 Parganas
Murshidabad
Jalpaiguri
Nadia
South 24 Parganas
Bardhaman
Howrah
Hooghly
Mysore
Cooch Behar
Kamrup
Coimbatore
Kanchipuram
Cuddalore
Villupuram
West Tripura
Thanjavur
Samastipur
Muzaffarpur
Nagaon
Pune
Malda
East Champaran
Madurai
Ganjam
Bangalore
Begusarai
Belgaum
Tiruvallur
East Midnapore
Top 30 districts
-Market Share
State
West Bengal
West Bengal
West Bengal
West Bengal
West Bengal
West Bengal
West Bengal
West Bengal
Karnataka
West Bengal
Assam
Tamil Nadu
Tamil Nadu
Tamil Nadu
Tamil Nadu
Tripura
Tamil Nadu
Bihar
Bihar
Assam
Maharashtra
West Bengal
Bihar
Tamil Nadu
Odisha
Karnataka
Bihar
Karnataka
Tamil Nadu
West Bengal
Exposure (INRb)
27.2
22.7
22.3
22.1
21.7
18.5
20.6
17.6
16.8
16.8
15.4
15.1
14.8
14.6
14.2
13.4
13.1
12.8
12.5
12.3
11.7
11.5
11.4
11.2
11.1
11.0
10.8
10.6
10.6
10.5
454.9
24%
Source: MOFSL, EQUIFAX, SIDBI
29 November 2019
7
 Motilal Oswal Financial Services
Sector Update | Financials
Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
> - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
*In
case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within following 30 days take appropriate measures to make the recommendation
consistent with the investment rating legend.
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"accredited" institutional investors as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (“the SFA”). Accordingly, if a Singapore person is not or ceases to be such an institutional investor, such Singapore Person must immediately
discontinue any use of this Report and inform MOCMSPL.
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced
in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments.
Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be
suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient.
Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult
its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-
investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The
Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The
Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from time to time, effect or have effected an own
account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in
this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already available in
publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information
and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or
resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOFSL to any registration or licensing requirement within such jurisdiction.
The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm,
not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. The person
accessing this information specifically agrees to exempt MOFSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOFSL or any of its affiliates or employees responsible for any such misuse
and further agrees to hold MOFSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263; Website www.motilaloswal.com.
CIN No.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad(West), Mumbai- 400 064. Tel No: 022 7188 1000.
Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate
Agent: CA0579 ;PMS:INP000006712. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth
Management Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance Products
and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. which is a group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of
MOFSL. Research & Advisory services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee of the returns. Investment in securities market is
subject to market risk, read all the related documents carefully before investing. Details of Compliance Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.
* MOFSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company Law Tribunal, Mumbai Bench.
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