Microfinance stress not alarming, says RBI deputy governor Swaminathan
- RBI had already requested banks and non-bank financiers to strengthen their underwriting standards and to step up their collection efforts so that the stress does not translate into bad loans.
The Reserve Bank of India (RBI) believes that the stress in microfinance loans is not alarming, deputy governor Swaminathan J said on Friday, even as data showed rising repayment delays by borrowers.
Swaminathan said it was not surprised by the rise in stress in micro loans as such loans had seen “outlier growth a year before”. He added that RBI had already requested banks and non-bank financiers to strengthen their underwriting standards and step up collections so that the stress does not translate into bad loans.
Microfinance borrowers have started delaying repayments, as many are juggling between multiple lenders. At the end of June, 2.5 million microfinance borrowers had loans from five or more lenders each , up 17.2% from the same period last year, showed data from credit bureau Crif High Mark.
Top microfinance companies including CreditAccess Grameen, Fusion Finance and Equitas Small Finance Bank have warned that many of their customers may be over-leveraged, after discovering that some have four or more active loans, Mint reported on 26 November.
RBI cautions lenders
“We continue to engage with the entities wherever we see any outlier behaviour. At the system level it is still not a big concern and about 20-30 basis points (bps) uptick in stress is something which we are confident that the entities will be able to handle,” said Swaminathan, adding that for lenders where there is significant deviation in stress as compared to the industry, RBI deals with them on a bilateral basis.
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In his October monetary policy speech, RBI governor Shaktikanta Das had sent a message to non-banks, particularly microfinance institutions and housing finance companies, to aggressively chase “growth at any cost”. This followed a warning in June where he had said RBI came across instances of micro lenders and non-bank financiers charging high, “usurious” interest rates on small-value loans.
The stress in micro loans comes nearly three years after the regulator removed pricing caps from microfinance institution loans, instead relying on these lenders to have policies that are approved by their boards. In March 2022, RBI said banks, non-banks and micro lenders must have a policy on pricing of microfinance loans.
Swaminathan also said that through the self-regulatory organisations (SROs), RBI has “enough levers” to ensure they take adequate steps to sensitize their members to adhere to the prudential guidelines of RBI.
The two SROs in the microfinance space are Sa-Dhan and Microfinance Institutions Network (MFIN) and both took measures to curb unprecedented growth.
Sa-Dhan did not cap the number of lenders a single individual can borrow from, but said the outstanding exposure of a household from all sources should not exceed ₹200,000. As Mint reported on 26 November, MFIN directed members to cut the number of lenders to a borrower to three from four earlier, and capped the debt of a borrower to ₹2 lakh, including both micro and unsecured retail loans.
Also Read: RBI calls for better governance in asset reconstruction companies
Gold loans spike on demand
Meanwhile, regarding a surge in gold loans, Swaminathan said how banks drive their business is purely a business call. To RBI, it is more important to ensure lenders are fair in their conduct towards customers and follow the appropriate norms related to loan-to-value, income-to-repayment obligations, he said.
Mint reported on 11 November how rising gold prices on the back of escalating global conflicts and uncertainty have also aided to demand for gold loans, as customers reassess the value of their collateral and seek more credit against it. Loans against gold jewellery grew at a staggering 56.2% year-on-year (y-o-y) in October, as against 13.1% in October 2023, latest central bank data showed.
“You also have to look at the percentages in reference to the base,” said Swaminathan, pointing out that gold loans are only a fraction of total bank credit. “Percentage at times can look different but what is more important is whether the portfolio is being built in a responsible manner.”
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First Published:6 Dec 2024, 06:59 PM IST
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