Kolkata: Lending rates for bottom-of-the-pyramid borrowers have hardened by 50-100 basis points in recent months despite the government rolling out the microfinance credit guarantee scheme to reduce rates and the broader softer rate cycle.
Heads of microfinance companies blame it on their own elevated borrowing costs.
"The current lending rate is an outcome of higher cost of borrowing, credit cost, and operating cost," chief executive of a leading non-banking financial company-microfinance institution (NBFC-MFI) said, requesting anonymity.
"Going forward, as the incremental stress is coming down, it will translate into rate cuts probably in the second half of the current fiscal," he said.
Top executives in the sector said they continue to borrow largely from private and MNC banks at higher rates as public sector banks remain selective in lending to MFIs.
Head of a big NBFC-MFI said the borrowing cost rose by about 150 basis points over the past one year till January, after which there was a 10 basis point relief. "This has forced the several NBFC-MFIs to keep the lending rates high," he said. "Some bigger ones started passing on the impact of higher borrowing cost after October last year."
The lenders have highlighted this cost aspect to the Reserve Bank of India, he added. To be sure, these lenders are laden with a huge pool of bad loans and written-off loans, which keeps the credit cost high.
The weighted average lending rates of leading NBFC-MFIs has increased over the past three-four months.
CreditAccess Grameen, the country's largest NBFC-MFI, had its weighted average lending rate in the January-March quarter at 22.76% against 22.11% in the July-September quarter. Its lending rate range based on the risk-based pricing method stands at 18-23.75%, reflecting a 75 bps rise at the upper band from 18-23% in October last year.
Other publicly listed entities such as Fusion Finance, Muthoot Microfin, Satin Creditcare Network and Spandana Sphoorty Financial have also seen their weighted average rates move higher in the fourth quarter when compared to the second quarter, multiple people aware said.
Lenders started risk-based pricing in 2022 after the Reserve Bank deregulated the market and removed the lending rate cap.
Meanwhile, the ₹20,000-crore microfinance credit guarantee scheme, which is expected to reduce microfinance companies' borrowing cost and, in turn, the lending rates charged by them to end borrowers, is yet to take off meaningfully, another NBFC-MFI head said.
The credit guarantee scheme, aimed to encourage banks to lend to microfinance institutions for on-lending to grassroot borrowers, was unveiled on March 20 and will remain in force till the end of the April-June quarter.
Heads of microfinance companies blame it on their own elevated borrowing costs.
"The current lending rate is an outcome of higher cost of borrowing, credit cost, and operating cost," chief executive of a leading non-banking financial company-microfinance institution (NBFC-MFI) said, requesting anonymity.
"Going forward, as the incremental stress is coming down, it will translate into rate cuts probably in the second half of the current fiscal," he said.
Top executives in the sector said they continue to borrow largely from private and MNC banks at higher rates as public sector banks remain selective in lending to MFIs.
Head of a big NBFC-MFI said the borrowing cost rose by about 150 basis points over the past one year till January, after which there was a 10 basis point relief. "This has forced the several NBFC-MFIs to keep the lending rates high," he said. "Some bigger ones started passing on the impact of higher borrowing cost after October last year."
Time will tell Lending rates have risen 50–100 bps in recent months despite govt’s microfin credit guarantee scheme
The lenders have highlighted this cost aspect to the Reserve Bank of India, he added. To be sure, these lenders are laden with a huge pool of bad loans and written-off loans, which keeps the credit cost high.
The weighted average lending rates of leading NBFC-MFIs has increased over the past three-four months.
CreditAccess Grameen, the country's largest NBFC-MFI, had its weighted average lending rate in the January-March quarter at 22.76% against 22.11% in the July-September quarter. Its lending rate range based on the risk-based pricing method stands at 18-23.75%, reflecting a 75 bps rise at the upper band from 18-23% in October last year.
Other publicly listed entities such as Fusion Finance, Muthoot Microfin, Satin Creditcare Network and Spandana Sphoorty Financial have also seen their weighted average rates move higher in the fourth quarter when compared to the second quarter, multiple people aware said.
Lenders started risk-based pricing in 2022 after the Reserve Bank deregulated the market and removed the lending rate cap.
Meanwhile, the ₹20,000-crore microfinance credit guarantee scheme, which is expected to reduce microfinance companies' borrowing cost and, in turn, the lending rates charged by them to end borrowers, is yet to take off meaningfully, another NBFC-MFI head said.
The credit guarantee scheme, aimed to encourage banks to lend to microfinance institutions for on-lending to grassroot borrowers, was unveiled on March 20 and will remain in force till the end of the April-June quarter.
