New RBI rule trims Q1 microloan disbursals

Aggregate microfinance disbursal in the June quarter stood at ₹57,842 crore, down 35% from the March quarter, showed data from microfinance institutions’ industry body Sa-Dhan. These include loans by non-banking financial company-microfinance institutions (NBFC-MFIs), universal banks, small finance banks, non-banking financial companies and not-for-profit companies.

Noting that this was a result of lenders adjusting their policies to the new RBI framework, experts said the first quarter of a fiscal typically sees fewer loans being disbursed than the preceding three months.

Effective 1 April, RBI capped the loan repayment obligation of a household at 50% of monthly income. This includes all repayments that a household has to make, not just for microfinance loans. According to analysts at ICICI Securities, more microloan applications have been rejected after implementing the guidelines, with the interest rate increasing to 50% from 30-35% earlier.

“This is the initial stage of implementing the new regulatory norm, and will therefore take a little time at the ground level as people need more training. That apart, certain internal systems need to be tweaked as well,” said Jiji Mammen, executive director and chief executive of Sa-Dhan.

Now, there is a more elaborate exercise to be carried out to assess the indebtedness of the household and not just the borrower, and that is also taking more time, said Mammen. He added that in the coming days, the industry will get more familiarized with the new policies and the teething troubles will be behind.

An internal Sa-Dhan study showed that rejection rates have gone up from 30% earlier to an average of about 42% at present. The primary reason for rejection rates going up was because some applicants were unable to meet the new criteria on equated monthly instalments (EMIs) being capped at 50% of the total income.

Others said the new RBI guideline provides the industry guardrails on risk practices to avoid future delinquencies.

“If you have a prudent framework in place and you are rejecting a loan application because it exceeds the prescribed ceiling, it reduces your risk. Lending to indebted clients could come to hit you back later and while rejection rates have gone up, especially in urban areas, it is not a cause for concern,” said Alok Misra, chief executive and director of industry body Microfinance Institutions Network.

Misra said if the rejection rates go up because some borrowers are overleveraged, it shows risk management systems are working. He does not see rejections dampening growth. “The market comprises 250-300 million borrowers and we have reached only about 60 million. There are many new-to-credit customers whom we have not lent to, and areas where we have not yet reached,” said Misra.

Meanwhile, ICICI Securities, in a report on Wednesday, said among microloan providers, RBL Bank saw the sharpest sequential fall in assets under management, at 23%, in Q1, followed by Spandana Sphoorty (down 16%) and Bandhan Bank, Indusind Bank and Credit Access Grameen seeing 4-7% decline in AUM.

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