Key Points
This trend of rising loan defaults is not restricted to individual borrowers, with credit rating agencies now highlighting this trend among unsecured business loans as well...
Notably, it was a fear of this eventual rise in delinquencies that led the Reserve Bank of India (RBI) last year to slam the brakes on the rapid growth of unsecured loans...
In other words, small borrowers were borrowing from multiple lenders at the same time, and were now finding themselves over-extended and unable to repay some or all of their loans.. Further, farmers protests and the Karz Mukti Abhiyan in certain regions, especially Punjab and Haryana, have impacted collections and the asset quality, ICRA added in the note..
This is a view held by other industry analysts as well.. Microfinance is at an important juncture wherein prudent lending practices grounded in deep understanding of the borrowers repayment capacity needs to be the focus area for sustainable growth, Prateek Mittal, assistant vice president and sector head of financial sector ratings at ICRA, told ThePrint...
According to India Ratings and Research (Ind-Ra), a Mumbai-based credit rating agency, the contagion of loan delinquency is spreading from unsecured loans given to individuals to such loans given out to small businesses, as well.. Post the microfinance segment, early signs of stress are visible in the unsecured business loan segment with an increase in credit costs and higher-than-expected write-offs, Karan Gupta, head and director of financial institutions at Ind-Ra, said.. On-field attrition, pressure in certain end-borrower segments and overleveraging of borrowers are the factors that have contributed to this asset quality pressure, he added...
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