<article><a style="color: #000080;" href="http://www.dealstreetasia.com/?s=equitas">Equitas </a>Small Finance Bank plans to reduce the level of microfinance loans to 25% of its loan book by March 2018 from 49% currently.</article>

<a style="color: #000080;" href="http://www.dealstreetasia.com/?s=equitas">Equitas </a>Small Finance Bank plans to reduce the level of microfinance loans to 25% of its loan book by March 2018 from 49% currently.
According to two people in the know, the bank has slowed down disbursal of fresh microfinance loans and is only topping up loans for its existing customers.
The bank has slowed down disbursing microfinance loans to new clients after a one-off event in November wherein local political leaders tried to influence microfinance borrowers that there loans have been waived off.
Equitas plans to venture into new portfolios like agricultural loans, gold loans and unsecured business loans going forward.
“In 2010, Equitas decided to bring the microfinance portfolio under 25% by 2018. This was done by diversifying into other secured products. Recent events has naturally slowed down the disbursement to the sector as funding is taking place only for existing client. The sector faces such risk which has little mitigation,” said a person aware of the development.
Equitas commenced both housing and used vehicle operations in 2011 in a bid to avoid concentration risk arising from single line of unsecured lending business. Used commercial vehicles portfolio and housing stood unchanged at 26% and 4% as on 31 December 2016, respectively, compared with last year. Medium and small enterprises (including loan against property) stood at 21% at the end of third quarter compared to 17% a year ago.
The bank declined to comment.
“The Andhra crisis triggered their shift into other product lines like lending for affordable housing which served to mitigate the risks of what essentially had been a mono-line business. At this stage, for the NBFC-MFIs which have transitioned into becoming small finance banks, the core microfinance portfolio would be around 80 % of the loan book,” said Alok Prasad, industry expert and former chief executive officer of MFIN.
According to Govind Singh, managing director and chief executive officer of <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=utkarsh">Utkarsh Small Finance Bank</a>, unsecured segment forms 99% of the portfolio currently and making more than 40% of book towards secured lending will be tough given their portfolio structure.
The <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=rbi">Reserve Bank of India’s (RBI)</a> move to allow lenders more time to classify loans as bad on account of the withdrawal of high-value bank notes led political leaders to earn brownie points among their constituents, in November. In certain parts of Maharashtra, Uttar Pradesh, Madhya Pradesh and Kerala, the microfinance industry saw repayment rates fall below 40% in the month of early December.
According to microfinance institutions network (MFIN) data, 30-day portfolio at risk (PAR) increased to 7.52% at the end of December quarter compared to sub 1% figure in the previous quarters.
“Gradual diversification will help in capacity building for them (Equitas). Growth beyond this would be challenging without over-leveraging the borrower since new microfinance borrowers are not being added,” said Jindal Haria, associate director of financial institutions at India Ratings and Research.
According to Haria, another risk to the segment is that the ticket size of microfinance loans is increasing at a more rapid pace than the income of the borrowers.
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Equitas Small Finance Bank plans to reduce the level of microfinance loans to 25% of its loan book by March 2018 from 49% currently.

India: Equitas looks to trim micro-loan portfolio to 25%

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India: Equitas looks to trim micro-loan portfolio to 25%

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