Chennai: Micro loans by non-banking finance companies are likely to see a flat growth or decline in FY25 against 28 per cent growth in FY24. The asset quality issues of the sector are likely to result in a muted performance in FY26 as well.
Disbursements were curtailed in 1HFY25 as NBFC-MFIs themselves substantially cut down their disbursements amid a cautionary approach due to the asset quality challenges. They had also capped the number of MFI loans per borrower going by the instruction of Micro Finance Industry Network (MFIN).
The Q2 results highlight the added stress for the sector, due to overleveraging and a cyclical slowdown in disbursements, both accentuating asset quality challenges. This could also lead to the debt lenders to the sector assessing their incremental disbursements, India Ratings said.
The second half usually tends to be a strong period in terms of disbursements for the sector. But in FY25, disbursements could be impacted as funding from lenders could remain tight unless collection efficiencies start improving.
Further, the recent regulatory actions on some entities placing embargo on disbursements amid concerns regarding loan pricing and increase in risk weighted average have added to the concerns of lenders to the sector.
As the sector has been grappling with multiple headwinds, Ind-Ra believes loan growth could take a back seat for lenders, and focus would be on managing the asset quality cycle, leading to shrinking of loan book across players.
NBFC-MFIs had grown 37 per cent in FY23 and around 28 per cent in FY24.
