Microfinance lenders tread cautiously amid rural stress

Kolkata: The microfinance market saw an uneven business trajectory during the quarter ended September, as lenders exercised caution amid El Nino-induced weather disruptions and concerns over rural borrowers' repayment capacity while bad loan write off led to portfolio contraction for a few.

Bandhan Bank and CreditAccess Grameen reported quarter-on-quarter declines in their outstanding group-based microfinance portfolios during the second quarter of FY27, while IndusInd Bank and L&T Finance recorded growth.

Lenders are keeping a close watch on the possible impact of drought, inflation and fuel costs on rural households.


"We continue to monitor potential risks from drought conditions in a few states, fuel and inflation trends along with next state elections, and we will calibrate our growth strategy accordingly," IndusInd Bank managing director Rajiv Anand said in a post-earning analyst call.

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Estimates for the sector's overall growth for the quarter differed between credit information companies.

Equifax India reported the gross loan portfolio at ₹3.29 lakh crore at the end of the second quarter, marginally its June-end estimate of ₹3.26 lakh crore, according to data shared with ET.

Crif High Mark, however, collated a 1.4% contraction in the sectoral gross loan portfolio to ₹3.28 lakh crore at September end from ₹3.33 lakh crore three months earlier.

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"The reduction stems from deliberate policy recalibration alongside moderated originations throughout the last quarter," Crif said in a report on Thursday.

While legacy portfolio quality and collection discipline have structurally improved compared to previous credit downturns, localised climate anomalies can potentially impact rural cash flows, and that remains a concern for the industry, executives said.